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What changed in VICOR CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of VICOR CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+172 added−209 removedSource: 10-K (2024-02-28) vs 10-K (2023-02-28)

Top changes in VICOR CORP's 2023 10-K

172 paragraphs added · 209 removed · 148 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

51 edited+9 added−20 removed79 unchanged
Biggest changeWe are unaware of any competitive solution for AI acceleration offering the power system performance and density of Power-on-Package, as IBA-based solutions must increase the number of conversion phases to reach high current levels, thereby increasing component count and motherboard area used, which contributes to higher switching and distribution losses, inferior dynamic response, and associated heat generation.
Biggest changeWe are unaware of any competitive solution for AI acceleration offering the power system performance and density of Power-on-Package, as IBA-based solutions must increase the number of conversion phases to reach high current levels, thereby increasing component count and motherboard area used, which contributes to higher switching and distribution losses, inferior dynamic response, and associated heat generation. 5 Table of Contents Our latest innovation for powering processors is vertical power delivery, which involves mounting our highest-performance solutions on the underside of the motherboard, opposite the GPU or AI ASIC, thereby enabling a further reduction in distribution losses at the load, yielding higher efficiency and unprecedented power density.
FPA, which is focused on, but not limited to, 48V DC distribution solutions, increases power system conversion efficiency, density, and power delivery performance by “factorizing” (i.e., separating) the power conversion process into individual components, reducing the design limitations, thermal management challenges, and scaling trade-offs associated with conventional architectures for DC voltage distribution.
FPA, which is focused on, but not limited to, 48V DC distribution solutions, increases power system conversion efficiency, density, and power delivery performance by “factorizing” (i.e., separating) the power conversion process into individual components, reducing the design limitations and thermal management challenges, and scaling trade-offs associated with conventional architectures for DC voltage distribution.
While we 3 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) and a broad range of customer requirements, we consider our core competencies to be associated with 48V distribution, which offers numerous inherent cost and performance advantages over lower distribution voltages, while remaining within the 60V SELV safety limit.
While we 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) and a broad range of customer requirements, we consider our core competencies to be associated with 48V distribution, which offers numerous inherent cost and performance advantages over lower distribution voltages, while remaining within the 60V SELV safety limit.
These IDMs generally offer far broader product portfolios, possess far greater global manufacturing and support resources, and have the ability to aggressively price their products to defend market share. Accordingly, Advanced Products are positioned as 7 highly differentiated alternatives to commodity solutions for customers seeking high levels of performance.
These IDMs generally offer far broader product portfolios, possess far greater global manufacturing and support resources, and have the ability to aggressively price their products to defend market share. Accordingly, Advanced Products are positioned as highly differentiated alternatives to commodity solutions for customers seeking high levels of performance.
While our website sets forth extensive information, including information regarding our products and the applications in which they may be used, such information is not a part of, nor incorporated by reference into, this Annual Report on Form 10-K and shall not be deemed “filed” under the Exchange Act. 12
While our website sets forth extensive information, including information regarding our products and the applications in which they may be used, such information is not a part of, nor incorporated by reference into, this Annual Report on Form 10-K and shall not be deemed “filed” under the Exchange Act.
With our Brick Product lines, we serve customers concentrated in aerospace and defense electronics, industrial automation, 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 a greater concentration of sales among relatively fewer customers.
With our Brick Product lines, we serve 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 a greater concentration of sales among relatively fewer customers.
While commodity electroplating services are available from numerous alternate providers, we entered into these agreements due to the level of our collaboration to date with the partner in the refinement of certain proprietary processes we employ and our joint commitment to environmentally sound manufacturing minimizing toxic waste.
While commodity electroplating services are available from numerous alternate providers, we entered into these agreements due to the level of our collaboration with the partner in the refinement of certain proprietary processes we employ and our joint commitment to environmentally sound manufacturing minimizing toxic waste.
Regulation occurs first, and the regulation module can be placed in the optimal position for 4 space utilization and thermal management. A regulated voltage approaching 48V is bussed across the circuit to the transformation module, which performs what we refer to as current multiplication, adjacent to the load.
Regulation occurs first, and the regulation module can be placed in the optimal position for space utilization and thermal management. A regulated voltage approaching 48V is bussed across the circuit to the transformation module, which performs what we refer to as current multiplication, adjacent to the load.
In this facility, we manufacture Brick Products, with the exception of custom products produced by our Vicor Custom Power and VJCL subsidiaries, and Advanced Products, with 9 the exception of certain products manufactured, packaged, and tested by third party wafer foundries and packaging contractors in the United States and Asia.
In this facility, we manufacture Brick Products, with the exception of custom products produced by our Vicor Custom Power and VJCL subsidiaries, and Advanced Products, with the exception of certain products manufactured, packaged, and tested by third party wafer foundries and packaging contractors in the United States and Asia.
We focus on distributed power implementations, for which our brick-format products are well-suited, in market segments such as aerospace and defense electronics, industrial automation, industrial equipment, instrumentation and test equipment, and transportation (e.g., rail). Our customers range from independent manufacturers of highly specialized electronic devices to larger original equipment manufacturers (“OEMs”) and their contract manufacturers.
We focus on distributed power implementations, for which our brick-format products are well-suited, in market segments such as aerospace and defense electronics, industrial equipment, instrumentation and test equipment, and transportation (e.g., rail and heavy equipment applications). Our customers range from independent manufacturers of highly specialized electronic devices to larger original equipment manufacturers (“OEMs”) and their contract manufacturers.
Many of our products incorporate patented or proprietary implementations of high-frequency switching topologies, which enable the design of power system solutions more efficient and much smaller than conventional alternatives. This efficiency and small size is enabled by our proprietary switching circuitry and magnetic structures, as well as our use of highly differentiated packaging.
Many of our products incorporate patented or proprietary implementations of high-frequency switching topologies, which enable the design of power system solutions more efficient and much smaller than conventional alternatives. This efficiency and small 3 Table of Contents size is enabled by our proprietary switching circuitry and magnetic structures, as well as our use of highly differentiated packaging.
Advanced Products We continue to invest in the research and development of power system technologies and product concepts addressing two accelerating trends, the first toward higher required conversion efficiencies, and the second toward more and diverse on-board voltages, higher performance demands of complex loads, and, in particular, higher current requirements of those loads.
Advanced Products 4 Table of Contents We continue to invest in the research and development of power system technologies and product concepts addressing two accelerating trends, the first toward higher required conversion efficiencies, and the second toward more and diverse on-board voltages, higher performance demands of complex loads, and, in particular, higher current requirements of those loads.
The customers we serve with Advanced Products, typically on a direct basis, are in market segments generally characterized by an emphasis on product performance differentiation, a compelling TCO, relatively extended and highly competitive design cycles, and product life cycles of generally less than three years.
The customers we serve with Advanced Products are in market segments generally characterized by an emphasis on product performance differentiation, a compelling TCO, relatively extended and highly competitive design cycles, and product life cycles of generally less than three years.
As of December 31, 2022, in the United States, we have been issued 122 patents having expirations scheduled between 2023 and 2040 and have filed a number of patent applications which are still pending, many of which are expected to issue as patents in 2023. We have vigorously protected our rights under these patents and will continue to do so.
As of December 31, 2023, in the United States, we have been issued 128 patents having expirations scheduled between 2024 and 2040 and have filed a number of patent applications which are still pending, many of which are expected to issue as patents in 2024. We have vigorously protected our rights under these patents and will continue to do so.
Our research and development activities have resulted in important patents protecting our products and enabling technologies, as well as proprietary trade secrets associated with our use of certain components and materials of our own design and proprietary manufacturing, packaging, and testing processes.
Our research and development activities have resulted in important patents protecting our products and enabling technologies, as well as proprietary trade secrets associated 9 Table of Contents with our use of certain components and materials of our own design and proprietary manufacturing, packaging, and testing processes.
We also partner with a range of non-profit organizations and have had notable success in our collaboration for over two decades with the Crest Collaborative of Methuen, MA, a local advocacy agency, in providing enriching employment opportunities for individuals with disabilities. For more information on our employee and community initiatives, please see our Corporate Social Responsibility webpage at www.vicorpower.com/about-the-company/corporate-social-responsibility .
We also partner with a range of non-profit organizations and have had notable success in our collaboration for over two decades with the Crest Collaborative of Andover, MA, a local advocacy agency, in providing enriching employment opportunities for individuals with disabilities. 10 Table of Contents For more information on our employee and community initiatives, please see our Corporate Social Responsibility webpage at www.vicorpower.com/about-the-company/corporate-social-responsibility .
Despite our minor share in the overall merchant market and the competitive presence of numerous, far larger vendors in the market segments we serve with both Advanced Products and Brick Products, we believe we maintain an advantageous competitive position in those market segments.
Despite our minor share in the overall merchant market and the competitive presence of numerous, far larger vendors in the market segments we serve with both Advanced Products and Brick Products, we believe we maintain an advantageous competitive position in those market segments based on our differentiated technology.
We also offer Advanced Product power system solutions for aerospace and aviation (e.g., for use in satellites, unmanned aerial vehicles, and various airframes, including battery-powered aircraft, for which small size, light weight, and design flexibility are advantageous); defense electronics (e.g., for use in airborne, seaborne, or field communications and radar, for which reliability in harsh environments is a priority); industrial automation, instrumentation, and test equipment (e.g., for use in robotics and semiconductor testing, for which high power levels and precision performance are required); solid state lighting (e.g., for use in large scale displays and signage, for which, again, small size, light weight, and design flexibility are advantageous); telecommunications and networking infrastructure (e.g., for use in high-throughput data distribution and pole-mounted small-cell base stations); and vehicles (e.g., in autonomous driving applications, electric vehicles, and hybrid electric vehicles).
We also offer Advanced Product power system solutions for aerospace and aviation (e.g., for use in satellites, unmanned aerial vehicles, and various airframes, including battery-powered aircraft, for which small size, light weight, and design flexibility are advantageous); defense electronics (e.g., for use in airborne, seaborne, or field communications and radar, for which reliability in harsh environments is a priority); factory automation, instrumentation, and test equipment (e.g., for use in robotics and semiconductor testing, for which high power levels and precision performance are required); telecommunications and networking infrastructure (e.g., for use in high-throughput data distribution and pole-mounted small-cell base stations); and vehicles (e.g., in autonomous driving applications, electric vehicles, and hybrid electric vehicles).
We recovered $229,000 and $676,000 for the years ended, December 31, 2022 and December 31, 2021, respectively, however, we are not able to estimate the amount or timing of any additional recoveries, and there can be no assurance that there will be any additional recoveries.
We recovered $6,954,000, $229,000 and $10,000 for the years ended December 31, 2023, 2022 and 2021, respectively, however, we are not able to estimate the amount or timing of any additional recoveries, and there can be no assurance that there will be any additional recoveries.
As of December 31, 2022, the Company’s order backlog was approximately $304,392,000, compared to $345,594,000 as of December 31, 2021. Backlog, as presented here, consists of orders for products for which shipment is scheduled within the following 12 months, subject to our scheduling and cancellation policies.
As of December 31, 2023, the Company’s order backlog was approximately $160,805,000, compared to $304,392,000 as of December 31, 2022. Backlog, as presented here, consists of orders for products for which shipment is scheduled within the following 12 months, subject to our scheduling and cancellation policies.
As previously disclosed, we partner with a highly-specialized third-party developer of electroplating processes and equipment, which performs certain elements of our proprietary manufacturing process using equipment designed by the developer. In 2019 and 2020, we entered into service and equipment purchase agreements with this partner.
We partnered with a highly-specialized third-party developer of electroplating processes and equipment, which performed certain elements of our proprietary manufacturing process using equipment designed by the developer. In 2019 and 2020, we entered into service and equipment purchase agreements with this partner.
We incurred approximately $60,594,000, $53,114,000, and $50,916,000 in research and development expenses in 2022, 2021, and 2020, respectively, representing approximately 15.2%, 14.8%, and 17.2% of revenues in 2022, 2021, and 2020, respectively. We believe our intellectual property affords advantages by building fundamental and multilayered barriers to competitive encroachment upon key features and performance benefits of our principal product families.
We incurred approximately $67,857,000, $60,594,000, and $53,114,000 in research and development expenses in 2023, 2022, and 2021, respectively, representing approximately 16.8%, 15.2%, and 14.8% of revenues in 2023, 2022, and 2021, respectively. We believe our intellectual property affords advantages by building fundamental and multilayered barriers to competitive encroachment upon key features and performance benefits of our principal product families.
The switching power supply market can be segmented by product type (i.e., DC-DC converters, AC-DC converters, and DC-AC inverters), by output power levels, and by numerous vertical markets (i.e., industry-specific applications). For 2022, exports to China and Hong Kong were approximately $75,194,000, representing approximately 18.8% of total revenue and an approximately 23.8% decrease over the 2021 total of approximately $98,700,000.
The switching power supply market can be segmented by product type (i.e., DC-DC converters, AC-DC converters, and DC-AC inverters), by output power levels, and by numerous vertical markets (i.e., industry-specific applications). For 2023, exports to China and Hong Kong were approximately $71,554,000, representing approximately 17.7% of total revenue and an approximately 4.8% decrease over the 2022 total of approximately $75,194,000.
With our Advanced Product lines, our customers are concentrated in the data center and hyperscaler segments of enterprise computing, in which our products are used for voltage distribution on server motherboards, in server racks, and across datacenter infrastructure, although we also target applications in aerospace and aviation, defense electronics, industrial automation, instrumentation, test equipment, solid state lighting, telecommunications and networking infrastructure, and vehicles (notably in the autonomous driving, electric vehicle, and hybrid vehicle niches of the vehicle segment).
With our Advanced Product lines, our customers are 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, although 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).
Competition and Market Characteristics The competitive characteristics of the markets we serve with Advanced Products and Brick Products can differ significantly. For example, in the higher-performance segments of computing we serve, our Advanced Products most often compete with solutions offered by large integrated device manufacturers (“IDMs”), which offer integrated circuits (“ICs”) and semiconductor-based modules.
For example, in the higher-performance segments of computing we serve, our Advanced Products most often compete with solutions offered by large integrated device manufacturers (“IDMs”), which offer integrated circuits (“ICs”) and semiconductor-based modules.
We incurred approximately $49,708,000, $46,602,000, and $43,396,000 in marketing and sales expenses in 2022, 2021, and 2020, respectively, representing approximately 12.5%, 13.0%, and 14.6% of revenues in 2022, 2021, and 2020, respectively. Manufacturing, Quality Assurance, and Supply Chain Management Our manufacturing facility, consisting of approximately 320,000 square feet, is located in Andover, Massachusetts, where we are headquartered.
We incurred approximately $52,938,000, $49,708,000, and $46,602,000 in marketing and sales expenses in 2023, 2022, and 2021, respectively, representing approximately 13.1%, 12.5%, and 13.0% of revenues in 2023, 2022, and 2021, respectively. 8 Table of Contents Manufacturing, Quality Assurance, and Supply Chain Management Our manufacturing facility, consisting of approximately 320,000 square feet, is located in Andover, Massachusetts, where we are headquartered.
Marketing and Sales We reach and serve customers through several sales channels: a direct sales force; a network of independent sales representative organizations in North America; independent, authorized non-stocking distributors in Europe and Asia; and four authorized stocking distributors world-wide: Arrow Electronics, Inc., Digi-Key Corporation, Future Electronics Incorporated, and Mouser Electronics, Inc.
Marketing and Sales We reach and serve customers through several sales channels: a direct sales force; independent, authorized non-stocking distributors in Europe and Asia; and four authorized stocking distributors world-wide: Arrow Electronics, Inc., Digi-Key Corporation, Avnet Electronics, and Mouser Electronics, Inc.
Transformation refers to the process of increasing or decreasing an AC voltage; isolation refers to the electrical separation, for safety, of primary and secondary voltages in a transformer; rectification refers to the process of converting a voltage from AC to DC and/or from DC to AC; and regulation refers to the process of providing a near constant voltage under a range of line and load conditions.
A power system most commonly incorporates four voltage conversion functions: transformation, isolation, rectification, and regulation. 2 Table of Contents Transformation refers to the process of increasing or decreasing an AC voltage; isolation refers to the electrical separation, for safety, of primary and secondary voltages in a transformer; rectification refers to the process of converting a voltage from AC to DC and/or from DC to AC; and regulation refers to the process of providing a near constant voltage under a range of line and load conditions.
We initially planned on taking occupancy of the addition in the first half of 2021, but due to a variety of factors including the effect of the global pandemic, we took occupancy of this addition during the first half of 2022 and equipment installation and qualification is underway.
We initially planned on taking occupancy of the addition in the first half of 2021, but due to a variety of factors including the effect of the global pandemic, we took occupancy of this addition during the first half of 2022. In 2023, we completed the installation of our advanced plating equipment and our advanced plating operation began production.
Vertically-mounting the solution allows unrestricted access to microprocessor input/output I/O pins on the top side of the motherboard, thereby improving I/O speed and memory access, which are a priority for GPUs and AI ASICs in AI applications.
Vertically-mounting the solution allows unrestricted access to microprocessor input/output I/O pins on the top side of the motherboard, thereby improving I/O speed and memory access, which are a priority for GPUs and AI ASICs in AI applications. We continue the development of our vertical power delivery solutions and shipped prototype products to a certain customer in 2022.
In the later part of 2022, the semiconductor industry experienced a downturn, and we believe the resulting reduction in orders on the industry will serve to loosen supply chains, though specific supply constraints on certain components remain a challenge. 10 To date, we have not experienced material delays or reduced raw material availability as a result of trade disputes between the U.S. and China, including the imposition in 2018 of import tariffs under the provisions of Section 301 of the Trade Act of 1974 (19 U.S.C. § 2411) (“Section 301 Tariffs”) on certain Chinese goods imported into the United States.
To date, we have not experienced material delays or reduced raw material availability as a result of trade disputes between the U.S. and China, including the imposition in 2018 of import tariffs under the provisions of Section 301 of the Trade Act of 1974 (19 U.S.C. § 2411) (“Section 301 Tariffs”) on certain Chinese goods imported into the United States.
Because of the technically complex nature of our products and the applications they address, we maintain an extensive staff of Field Applications Engineers to support our own sales and customer support activities, as well as those of our channel partners.
The warranty period is three years for a range of H Grade, M Grade, and MI Family DC-DC products. Because of the technically complex nature of our products and the applications they address, we maintain an extensive staff of Field Applications Engineers to support our own sales and customer support activities, as well as those of our channel partners.
Within our website, the Power System Designer workspace of tools and references allow engineers to select, architect, and implement power systems using our products. Our highly differentiated Whiteboard TM tool allows users to configure and analyze their own power system designs or those from an extensive library of designs addressing a wide range of applications.
Our highly differentiated Whiteboard TM tool allows users to configure and analyze their own power system designs or those from an extensive library of designs addressing a wide range of applications.
While we believe we have a significant share of 48V power distribution opportunities within the segments of the computing markets we serve, there are numerous competitors across these market segments that have significantly greater engineering, financial, manufacturing, and marketing and sales resources, as well as longer operating histories and longer customer relationships than we do.
However, there are numerous competitors across these market segments that have significantly greater engineering, financial, manufacturing, and marketing and sales resources, as well as longer operating histories and longer customer relationships than we do.
Annual revenue associated with the sale of Brick Products, inclusive of such sales of our Vicor Custom Power and VJCL subsidiaries, was approximately 39.0%, 52.6%, and 64.2% of the Company’s consolidated revenue for the years ended December 31, 2022, 2021, and 2020, respectively. 6 Customers and Backlog 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.
Annual revenue associated with the sale of Brick Products, inclusive of such sales of our Vicor Custom Power and VJCL subsidiaries, was approximately 44.7%, 39.0%, and 52.6% of the Company’s consolidated revenue for the years ended December 31, 2023, 2022, and 2021, respectively.
All sales channels are supported by regional TSCs, 8 each offering application engineering and sales support for our channel partners. Domestic TSCs are located in: Andover, Massachusetts; Lombard, Illinois; and Santa Clara, California.
In order to provide greater focus to our account base in 2023, we discontinued use of independent sales representatives in North America. All sales channels are supported by regional TSCs, each offering application engineering and sales support for our channel partners. Domestic TSCs are located in: Andover, Massachusetts; Lombard, Illinois; and Santa Clara, California.
Our wholly-owned subsidiary, VICR Securities Corporation, also is located in Andover, Massachusetts. Our other domestic offices are located in Santa Clara, California, Lombard, Illinois, and Lincoln, Rhode Island.
Our wholly-owned subsidiary, VICR Securities Corporation, also is located in Andover, Massachusetts. Our other domestic offices are located in Santa Clara, California, Lombard, Illinois, and Lincoln, Rhode Island. Our two Vicor Custom Power tm subsidiaries, Freedom Power Systems, Inc. and Northwest Power, Inc., are located in Cedar Park, Texas, and Milwaukie, Oregon, respectively.
Our two Vicor Custom Power ™ subsidiaries, Freedom Power Systems, Inc. and Northwest Power, Inc., are located in Cedar Park, Texas, and Milwaukie, Oregon, respectively. 2 We have established individual subsidiaries or unincorporated branch offices outside of the United States, which we call Technical Support Centers (“TSCs”), to conduct preparatory and auxiliary services in support of the Company.
We have established individual subsidiaries or unincorporated branch offices outside of the United States, which we call Technical Support Centers (“TSCs”), to conduct preparatory and auxiliary services in support of the Company. Vicor Japan Company, Ltd.
As stated, our strategy involves maintaining high levels of customer engagement and support for design and engineering, which has resulted in significant expansion of our sales and application engineering infrastructure over historical levels.
As stated, our strategy involves maintaining high levels of customer engagement and support for design and engineering.
Our remaining subsidiaries and their legal domicile are set forth in Exhibit 21.1 to this Annual Report on Form 10-K. The activities of all of the above named entities are consolidated in the financial statements presented herein. Vicor was incorporated in Delaware in 1981, and we completed an initial public offering in May 1991.
The activities of all of the entities referred to above are consolidated in the financial statements presented herein. Vicor was incorporated in Delaware in 1981, and we completed an initial public offering in May 1991.
As of December 31, 2022, we had 1,088 full-time employees, of which 989 were in the U.S. and 99 were in our international locations. None of our employees are represented by a labor union or covered by a collective bargaining agreement. 11 We recruit from colleges and universities, with a focus on specific engineering disciplines.
As of December 31, 2023, we had 1,063 full-time employees, of which 968 were in the U.S. and 95 were in our international locations. As of December 31, 2023, we also had 25 part-time temporary employees. None of our employees are represented by a labor union or covered by a collective bargaining agreement.
In collaboration with certain universities, we maintain a student “Co-Op” program, whereby qualifying undergraduate and graduate students work at our Andover facilities for one or two semesters, receiving course credit towards their graduation. In recent years, we have had as many as approximately two dozen participants per semester, with a substantial percentage of participants receiving offers of full-time employment.
We recruit from colleges and universities, with a focus on specific engineering disciplines. In collaboration with certain universities, we maintain a student “Co-Op” program, whereby qualifying undergraduate and graduate students work at our Andover facilities for one or two semesters, receiving course credit towards their graduation.
Annual revenue associated with the sale of Advanced Products was approximately 61.0%, 47.4%, and 35.8% of the Company’s consolidated revenue for the years ended December 31, 2022, 2021, and 2020, respectively. Advanced Products revenue grew in 2022 primarily due to cloud computing infrastructure growth and the further adoption of AI systems within the cloud.
Annual revenue associated with the sale of Advanced Products was approximately 55.3%, 61.0%, and 47.4% of the Company’s consolidated revenue for the years ended December 31, 2023, 2022, and 2021, respectively.
Certain Advanced Products and semiconductor devices used in our production are manufactured by a limited number of wafer foundries, with packaging and test services provided by a limited number of third parties. We rely on these wafer foundries and packaging and test providers for supply continuity of these critical semiconductor devices.
In 2023, there was a general loosening of the semiconductor supply chain, even as the supply of some components remained constrained. Certain Advanced Products and semiconductor devices used in our production are manufactured by a limited number of wafer foundries, with packaging and test services provided by a limited number of third parties.
For 2022, exports to Taiwan were approximately $105,226,000, representing approximately 26.4% of total revenue and an approximately 82.3% increase over the 2021 total of approximately $57,711,000. Taiwan is a contract manufacturing site for certain high performance compute OEMs that drove increased demand.
For 2023, exports to Taiwan were approximately $59,005,000, representing approximately 14.6% of total revenue and an approximately 43.9% decrease over the 2022 total of approximately $105,226,000. The decreased volume related to lower demand in Taiwan which is a contract manufacturing site for certain high performance compute OEMs.
Customs and Border Protection for the recovery of tariffs paid on raw materials used to produce products we subsequently exported.
We continue to assess the impact of these costs and are actively evaluating alternative sources of raw materials. We also have filed “duty drawback” applications with U.S. Customs and Border Protection for the recovery of tariffs paid on raw materials used to produce products we subsequently exported.
We are in the final development stages of our vertical power delivery solutions and shipped prototype products to a certain customer in 2022. 5 Our proprietary technologies enable us to offer a range of Advanced Products, in various package formats across functional families, applicable to other market segments and power distribution architectures other than FPA.
Our proprietary technologies enable us to offer a range of Advanced Products, in various package formats across functional families, applicable to other market segments and power distribution architectures other than FPA. Within computing, these market segments include AC to DC voltage conversion and DC voltage distribution in server racks and high voltage conversion across datacenter infrastructure.
An additional influence on turns volume has been our transition to larger OEM customers, which typically schedule large volumes for delivery over multiple quarters and frequently reschedule deliveries for either earlier or later shipment. Average quarterly turns volume was approximately 11% of 2022 revenue, approximately 19% of 2021 revenue, and approximately 14% of 2020 revenue.
In 2023, our order backlog declined as a result of working down both current and overdue backlog while the book to bill ratio stayed below 1.0. An additional influence on turns volume has been our transition to larger OEM customers, which typically schedule large volumes for delivery over multiple quarters and frequently reschedule deliveries for either earlier or later shipment.
The initial planned installation dates for this equipment in 2021 were, in some cases, delayed due to a variety of factors including the effect of the global pandemic, with the current expectation that the line will be complete in 2023.
We relied on this partner’s services to meet our requirements for SM-ChiP production until 2023, when we completed the plating line and brought the production process in-house. The initial planned installation dates for this equipment in 2021 were, in some cases, delayed due to a variety of factors including the effect of the global pandemic.
Vicor Japan Company, Ltd. (“VJCL”), our 92.5%-owned Japanese subsidiary, which is engaged in sales and customer support activities exclusively for the sale of certain products customized by VJCL for the Japanese market, is headquartered in Tokyo, Japan. In August 2020, our subsidiary, VLT, Inc., which was a vehicle for licensing technologies, was merged with and into the Company.
(“VJCL”), our 92.5%-owned Japanese subsidiary, which is engaged in sales and customer support activities exclusively for the sale of certain products customized by VJCL for the Japanese market, is headquartered in Tokyo, Japan. Our remaining subsidiaries and their legal domicile are set forth in Exhibit 21.1 to this Annual Report on Form 10-K.
For the year ended December 31, 2022, costs associated with tariffs totaled approximately $10,201,000, an increase of 52.8% over the $6,678,000 in costs incurred for the year ended December 31, 2021. We continue to assess the impact of these costs and are actively evaluating alternative sources of raw materials. We also have filed “duty drawback” applications with U.S.
For the year ended December 31, 2023, costs associated with tariffs totaled approximately $7,985,000, a decrease of 21.7% over the $10,201,000 in costs incurred for the year ended December 31, 2022. For the year ended December 31, 2021, costs associated with tariffs totaled approximately $6,678,000.
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A power system most commonly incorporates four voltage conversion functions: transformation, isolation, rectification, and regulation.
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Customers and Backlog 6 Table of Contents 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.
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Our latest innovation for powering processors is vertical power delivery, which involves mounting our highest-performance solutions on the underside of the motherboard, opposite the GPU or AI ASIC, thereby enabling a further reduction in distribution losses at the load, yielding higher efficiency and unprecedented power density.
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Over the course of 2023, the supply picture for the global semiconductor industry generally improved and as a result we were able to increase raw material inventory. We generally maintained quoted lead time for delivery to customers at 26 – 32 weeks depending on product family.
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Within computing, these market segments include AC to DC voltage conversion and DC voltage distribution in server racks and high voltage conversion across datacenter infrastructure.
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In the first quarter of 2023, we increased prices for most products as part of our portfolio management process.
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The lead times between receipt and acceptance of an order and our shipment of the product have increased, largely as a consequence of the COVID-19 pandemic and in particular in 2022, the resulting lock-downs in China associated with its zero-COVID policy. The COVID-19 pandemic has caused widespread delays in production and delivery.
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Average quarterly turns volume was approximately 18% of 2023 revenue, approximately 11% of 2022 revenue, and approximately 19% of 2021 revenue. Competition and Market Characteristics The competitive characteristics of the markets we serve with Advanced Products and Brick Products can differ significantly.
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In response, during the second quarter of 2021, we extended our quoted lead times for delivery to customers to 26-32 weeks depending on the product family. Customer demand has outstripped capacity and semiconductor suppliers have allocated capacity. In addition, suppliers have increased component pricing.
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We believe this 7 Table of Contents decreased volume was primarily associated with a softer market in this region driving lower demand for our products.
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In the second quarter of 2021 and in the first quarter of 2022, we increased our prices in response to component cost increases that could no longer be absorbed.
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Our web-based resources are an important element of our efforts to interact with and support customers. Within our website, the Power System Designer workspace of tools and references allow engineers to select, architect, and implement power systems using our products.
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Due to lengthened delivery lead times and supply constraints across the electronics industry, the volume of turns orders has been lower on average in the last few years than in prior years.
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We rely on these wafer foundries and packaging and test providers for supply continuity of these critical semiconductor devices.
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However, over the same period, the volume of orders for which customers have requested accelerated delivery has increased, which we believe to be a reflection of the demand for our products in key end markets and our limited capacity to meet this demand.
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While prior to 2023 there had been supply constraints across a number of these suppliers, in 2023 we were generally able, with the exception of a limited number of constraints on certain components, to drive sufficient supply so as to reduce overdue backlog during the year.
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In the second half of 2022, the semiconductor industry experienced a slow down due to a number of factors. The order rate from customers declined in this period. We believe the decline in order rate related, in part, to the general slow down in the semiconductor industry.
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In recent years, we have had as many as approximately two dozen participants per semester, with a number of participants receiving offers of full-time employment.
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In addition, order rates from contract manufacturing customers that manufacture for a high performance compute OEM declined and we believe this was due, in part, to the substantial backlog we built up earlier in the year, as well as a product transition from one generation to the next.
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We believe this decreased volume was primarily associated with the lockdowns in China associated with their zero-COVID policy and related constraints on the Chinese economy.
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The warranty period is three years for a range of H Grade, M Grade, and MI Family DC-DC products. In a limited number of circumstances, we have entered into supply contracts with certain high-volume customers calling for extended warranty terms.
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With our distribution partners, we also enter into contracts providing for our product warranties to transfer to the end customer upon final sale of our product(s) by the distributor.
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We also reach customers through the electronic commerce capabilities of our website, www.vicorpower.com. Registered, qualified customers in the United States, Canada, and certain European countries are able to purchase selected products online. Our web-based resources are an important element of our efforts to interact with and support customers.
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We have relied on this partner’s services to meet our requirements for SM-ChiP production to date, but we expect to have fully-operational production capabilities on site.
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Generally, the global electronics supply chain continued to be impacted by the COVID-19 pandemic in 2022. Lead times for delivery of certain raw materials remain extended.
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Most of these raw materials are available from multiple sources, whether directly from suppliers or indirectly through distributors, and, during 2022 we continued to opportunistically expand certain raw material inventories to offset the uncertainties associated with availability and lead times.
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Throughout the majority of 2022, the semiconductor test and packaging segment of the global electronics supply chain experienced well-publicized capacity constraints, and, as a result, we have continued to experience unpredicted delays in receipt of certain semiconductor components from our packaging and test vendors.
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To date, these delays have not had a material impact on our ability to meet customer delivery requirements. In response to current schedule uncertainties, we are seeking alternate providers of packaging and test services and may further increase inventory levels for these semiconductor components, when possible.
Removed
Should these capacity constraints continue or worsen and we are unable to obtain the necessary volumes of required semiconductor components, we may not be able to meet delivery commitments for certain customers and may not be able to reduce delivery lead times for the foreseeable future.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

44 edited+7 added−24 removed87 unchanged
Biggest changeAn extended delay in completing our capacity expansion could have a material adverse effect on our results of operations and negatively impact our ability to execute on our Advanced Products strategy. We have been making and will continue to make capital investments for the expansion of manufacturing capacity for the production of Advanced Products at our Andover facility.
Biggest changeWe have been making and will continue to make capital investments for the expansion of manufacturing capacity for the production of Advanced Products at our Andover facility. In 2023, as part of the expansion of our Andover facility, we brought in-house the complex electroplating operation previously outsourced to a third-party partner.
In addition, litigation may be necessary to defend us against claims of infringement, and this litigation could be costly, extend over a lengthy period of time, and divert the attention of key personnel. An adverse outcome in these types of matters could have a material adverse impact on our operating results and financial condition.
In addition, litigation may be necessary to defend us against claims of infringement, and this litigation could be costly, extend over a lengthy period of time, and divert the attention of key personnel. An adverse outcome in these types of matters could have a material adverse impact on our business, operating results and financial condition.
We continue to focus our go-to-market strategy on larger opportunities with global OEMs, ODMs, and contract manufacturers. Our growth is therefore dependent on: the pace at which these OEMs and ODMs develop 21 their own new products; the acceptance of our Advanced Products by these OEMs and ODMs; and the success of the customers’ products incorporating our Advanced Products.
We continue to focus our go-to-market strategy on larger opportunities with global OEMs, ODMs, and contract manufacturers. Our growth is therefore dependent on: the pace at which these OEMs and ODMs develop their own new products; the acceptance of our Advanced Products by these OEMs and ODMs; and the success of the customers’ products incorporating our Advanced Products.
We depend heavily on our computing and communications infrastructure to achieve our business objectives, particularly for our financial and operational record keeping, our computer-integrated manufacturing processes controlling all aspects of our operations in our manufacturing facility in Andover, Massachusetts, our public 17 website, and our email communications.
We depend heavily on our computing and communications infrastructure to achieve our business objectives, particularly for our financial and operational record keeping, our computer-integrated manufacturing processes controlling all aspects of our operations in our manufacturing facility in Andover, Massachusetts, our public website, and our email communications.
In particular, we are dependent on the services of Dr. Vinciarelli, our founder, Chairman of the Board, Chief Executive Officer, and President. The loss of the services of Dr. Vinciarelli could have a material adverse effect on our development of new products and on our results of operations.
In particular, we are dependent on the services of Dr. Vinciarelli, our founder, Chairman of the Board, Chief Executive Officer, and President. The loss of the services of Dr. Vinciarelli could have a material adverse effect on our development of new products and on our business and results of operations.
Any of the foregoing could have a material adverse effect on our operating results and could require us to pay significant monetary damages. 22 The outcomes of legal proceedings and claims brought against us are subject to significant uncertainty.
Any of the foregoing could have a material adverse effect on our operating results and could require us to pay significant monetary damages. The outcomes of legal proceedings and claims brought against us are subject to significant uncertainty.
These recent export controls are, in part, intended to restrict the ability of the People’s Republic of China to obtain advanced computing chips, develop and maintain supercomputers, and 19 manufacture advanced semiconductors.
These recent export controls are, in part, intended to restrict the ability of the People’s Republic of China to obtain advanced computing chips, develop and maintain supercomputers, and manufacture advanced semiconductors.
Furthermore, we may never generate the anticipated revenues from a product after incurring such expenses if our customer cancels or changes its product plans. In 2022, we continued our expansion of a dedicated sales effort to penetrate the automotive market with our Advanced Products, notably in the electrification of passenger automobiles.
Furthermore, we may never generate the anticipated revenues from a product after incurring such expenses if our customer cancels or changes its product plans. In 2023, we continued our expansion of a dedicated sales effort to penetrate the automotive market with our Advanced Products, notably in the electrification of passenger automobiles.
We have no formal policy regarding dividends and, as such, investors cannot make assumptions regarding the possibility of future dividend payments nor the amounts and timing thereof. As of December 31, 2022, we have no plans to declare or pay a cash dividend. The ownership of our Common Stock is concentrated between Dr.
We have no formal policy regarding dividends and, as such, investors cannot make assumptions regarding the possibility of future dividend payments nor the amounts and timing thereof. As of December 31, 2023, we have no plans to declare or pay a cash dividend. The ownership of our Common Stock is concentrated between Dr.
We anticipate a reduction in Section 301 Tariffs we incur during 2023, given the ongoing transition to non-Chinese vendors, but we are not able to estimate the amount of such reduction, if any. Similarly, we cannot predict if or when the U.S. government may reduce or eliminate Section 301 Tariffs. 14 We also have filed “duty drawback” applications with U.S.
We anticipate a reduction in Section 301 Tariffs we incur during 2024, given the ongoing transition to non-Chinese vendors, but we are not able to estimate the amount of such reduction, if any. Similarly, we cannot predict if or when the U.S. government may reduce or eliminate Section 301 Tariffs. We also have filed “duty drawback” applications with U.S.
In the event a third party makes a valid intellectual property claim against us and a license is not available to us on commercially reasonable terms, or at all, we could be forced to either redesign or stop production of products incorporating that technology, and our operating results could be materially and adversely affected.
In the event a third party makes a valid intellectual property claim against us and a license is not available to us on commercially reasonable terms, or at all, we could be forced to either redesign or stop production of products incorporating that technology, and our business, financial condition and operating results could be materially and adversely affected.
While we employ confidentiality agreements to protect other sensitive information (i.e., information not considered CUI), our own security measures or those of our third party service providers may not be sufficient to protect such information in the event the computing infrastructure of these third party business partners is compromised.
While we employ confidentiality agreements to protect other sensitive information (i.e., information not considered controlled unclassified information), our own security measures or those of our third party service providers may not be sufficient to protect such information in the event the computing infrastructure of these third party business partners is compromised.
If we identify excess inventory or determine certain inventory is obsolete (i.e., unusable), we likely will record additional inventory reserves (i.e., expenses representing the write-off of the excess or obsolete inventory), which could have an adverse effect on our gross margins and on our operating results.
If we identify excess inventory or determine certain inventory is obsolete (i.e., unusable), we likely will record 13 Table of Contents additional inventory reserves (i.e., expenses representing the write-off of the excess or obsolete inventory), which could have an adverse effect on our gross margins and on our operating results.
Our future operating results may be materially influenced by a number of factors, many of which are beyond our control, including: • changes in demand for our products and for our customers’ end-products incorporating our products, as well as our ability to respond efficiently to such changes in demand, including changes in delivery lead times and the volume of product for which orders are accepted and the product shipped within an individual quarter; • our ability to manage our supply chain, inventory levels, and our own manufacturing capacity or that of third-party partners, particularly in the event of delays or cancellation of significant customer orders or in the event of delays or cost increases associated within our supply chain; • our ability to effectively coordinate changes in the mix of products we manufacture and sell, while managing our ongoing transition in organizational focus and manufacturing infrastructure to Advanced Products from Brick Products; • our ability to provide and maintain a high level of sales and engineering support to an increasing number of demanding, high volume customers; • the ability of our third party suppliers and service subcontractors to provide us sufficient quantities of high quality products, components, and/or services on a timely and cost-effective basis; • the effectiveness of our ongoing efforts to continuously reduce manufacturing costs per unit and manage operating expenses; • our ability to absorb and mitigate the impact of inflation on our operating results; • our ability to utilize our manufacturing facilities and personnel at efficient levels, maintaining sufficient production capacity and necessary manufacturing yields; • our ability to plan, schedule, and execute capacity expansion, including the anticipated start up in 2023 of approximately 90,000 square feet to our Andover manufacturing facility; • the timing of our new product introductions and our ability to meet customer expectations for timely delivery of fully qualified products; 13 • the timing of new product introductions or other competitive actions (e.g., product price reductions) by our competitors; • the ability to hire, retain, and motivate qualified employees to meet the demands of our customers; • intellectual property disputes; • litigation-related costs, which may be significant; • adverse economic conditions in the U.S. and those foreign countries in which we operate, as well as our ability to respond to unanticipated developments, such as the imposition of tariffs or trade restrictions; • adverse budgetary conditions within the U.S. government, particularly the Department of Defense, which continue to influence spending on current and anticipated programs into which we sell or anticipate to sell our products; • costs related to compliance with increasing worldwide governance, quality, environmental, and other regulations; • costs and consequences of disruption by third-parties of our global computer network and related resources; and • the effects of events outside of our control, including public health emergencies, natural disasters, terrorist activities, political risks, international conflicts, information security breaches, communication interruptions, and other force majeure .
Our future operating results may be materially influenced by a number of factors, many of which are beyond our control, including: • changes in demand for our products and for our customers’ end-products incorporating our products, as well as our ability to respond efficiently to such changes in demand, including changes in delivery lead times and the volume of product for which orders are accepted and the product shipped within an individual quarter; • our ability to manage our supply chain, inventory levels, and our own manufacturing capacity or that of third-party partners, particularly in the event of delays or cancellation of significant customer orders or in the event of delays or cost increases associated with our supply chain; • our ability to effectively coordinate changes in the mix of products we manufacture and sell, while managing our ongoing transition in organizational focus and manufacturing infrastructure to Advanced Products from Brick Products; • our ability to provide and maintain a high level of sales and engineering support to an increasing number of demanding, high volume customers; • the ability of our third party suppliers and service subcontractors to provide us sufficient quantities of high quality products, components, and/or services on a timely and cost-effective basis; • the effectiveness of our ongoing efforts to continuously reduce manufacturing costs per unit and manage operating expenses; • our ability to absorb and mitigate the impact of inflation on our operating results; • our ability to utilize our manufacturing facilities and personnel at efficient levels, maintaining sufficient production capacity and necessary manufacturing yields; 11 Table of Contents • the timing of our new product introductions and our ability to meet customer expectations for timely delivery of fully qualified products; • the timing of new product introductions or other competitive actions (e.g., product price reductions) by our competitors; • the ability to hire, retain, and motivate qualified employees to meet the demands of our customers; • intellectual property disputes; • litigation-related costs, which may be significant; • adverse economic conditions in the U.S. and those foreign countries in which we operate, as well as our ability to respond to unanticipated developments, such as the imposition of tariffs or trade restrictions; • adverse budgetary conditions within the U.S. government, particularly the Department of Defense, which continue to influence spending on current and anticipated programs into which we sell or anticipate to sell our products; • costs related to compliance with increasing worldwide governance, quality, environmental, and other regulations; • costs and consequences of disruption by third-parties of our global computer network and related resources; and • the effects of events outside of our control, including public health emergencies, natural disasters, terrorist activities, political risks, international conflicts, information security breaches, communication interruptions, and other force majeure .
For 2022, 2021 and 2020, Section 301 Tariffs totaled approximately 2.6%, 1.9% and 2.4%, respectively, of annual revenue, representing a material reduction in our gross profit margin as a percentage of annual revenue. We continue to evaluate alternative sources of raw materials, and in 2020, 2021, and 2022 we qualified non-Chinese vendors for certain high-volume raw materials and components.
For 2023, 2022 and 2021, Section 301 Tariffs totaled approximately 2.0%, 2.6% and 1.9%, respectively, of annual revenue, representing a material reduction in our gross profit margin as a percentage of annual revenue. We continue to evaluate alternative sources of raw materials, and in 2021, 2022, and 2023 we qualified non-Chinese vendors for certain high-volume raw materials and components.
He also holds 11,023,648 shares of our unregistered Class B Common Stock (which may only be sold or transferred after required conversion, on a one-for-one basis, into registered shares of Common Stock), which together with his ownership of Common Stock, represents 48.1% of our total issued and outstanding shares of capital stock.
He also holds 11,023,648 shares of our unregistered Class B Common Stock (which may only be sold or transferred after required conversion, on a one-for-one basis, into registered shares of Common Stock), which together with his ownership of Common Stock, represents 47.6% of our total issued and outstanding shares of capital stock.
We may face legal claims and litigation from product warranty or other claims that could be costly to resolve. We have in the past and may in the future encounter legal action from customers, vendors, or others concerning product warranty or other claims.
We may face legal claims and litigation from product warranty or other claims that could be costly to resolve and could impact our business. We have in the past and may in the future encounter legal action from customers, vendors, or others concerning product warranty or other claims.
With our Advanced Product lines, we compete with global IDMs and fabless developers of semiconductor-based power management modules and power management ICs. These competitors have far larger organizations and broader semiconductor-based product lines.
With our Advanced Product lines, we compete with global IDMs and fabless developers of semiconductor-based power management modules and power 16 Table of Contents management ICs. These competitors have far larger organizations and broader semiconductor-based product lines.
Our inability to secure sufficient raw materials to manufacture products for our customers has reduced, in the past, our revenue and profitability and could do so again. Over the course of the last few years, there have been circumstances where supply disruptions, often associated with the global pandemic, have impacted our results.
Our inability to secure sufficient raw materials to manufacture products for our customers has reduced, in the past, our revenue and profitability and could do so again. Over the course of the last few years, there have been circumstances where supply disruptions have impacted our results.
Global economic and political uncertainties, notably those associated with trade policy, could materially and adversely affect our business and consolidated operating results. For the years ended December 31, 2022, 2021, and 2020, revenues from sales outside the United States were 67.6%, 67.0%, and 64.4%, respectively, of our total revenues.
Global economic and political uncertainties, notably those associated with trade policy, could materially and adversely affect our business and consolidated operating results. For the years ended December 31, 2023, 2022, and 2021, revenues from sales outside the United States were 63.1%, 67.6%, and 67.0%, respectively, of our total revenues.
We recovered $229,000 for the year ended December 31, 2022, however, we are not able to estimate the amount or timing of any additional recoveries, and there can be no assurance that there will be any additional recoveries. In 2019, China implemented reciprocal inbound tariffs of up to 25% on products exported from the U.S., including all of our products.
We recovered $6,954,000 for the year ended December 31, 2023, however, we are not able to estimate the amount or timing of any additional recoveries, and there can be no assurance that there will be any additional recoveries. 12 Table of Contents In 2019, China implemented reciprocal inbound tariffs of up to 25% on products exported from the U.S., including all of our products.
Competitive Risks We compete with many companies possessing far greater resources. Some of our competitors have far greater financial, manufacturing, technical, and sales and marketing resources than we possess or have access to. Our Brick Products compete with those products offered by 20 domestic and foreign manufacturers of integrated power supplies and related power conversion components.
Some of our competitors have far greater financial, manufacturing, technical, and sales and marketing resources than we possess or have access to. Our Brick Products compete with those products offered by domestic and foreign manufacturers of integrated power supplies and related power conversion components.
Vinciarelli and a limited number of institutional investors. As of December 31, 2022, Dr. Vinciarelli was the beneficial owner of 9,592,017 shares of our Common Stock, plus 429,371 shares which Dr. Vinciarelli has the right to acquire upon exercise of options to purchase Common Stock within 60 days of December 31, 2022.
Vinciarelli and a limited number of institutional investors. As of December 31, 2023, Dr. Vinciarelli was the beneficial owner of 9,592,017 shares of our Common Stock, plus 430,743 shares which Dr. Vinciarelli has the right to acquire upon exercise of options to purchase Common Stock within 60 days of December 31, 2023.
In 2022, our revenue increased but the order rate declined. Trading conditions in China (inclusive of Hong Kong), had deteriorated through 2019 due to macroeconomic and trade-related uncertainties. At the beginning of 2020, trading conditions were significantly further affected by the COVID-19 pandemic, with much of the country’s manufacturing disrupted for January and February 2020.
Trading conditions in China (inclusive of Hong Kong) had deteriorated through 2019 due to macroeconomic and trade-related uncertainties. At the beginning of 2020, trading conditions were significantly further affected by the COVID-19 pandemic, with much of the country’s manufacturing disrupted for January and February 2020.
Substantial damage to our existing manufacturing facility due to fire, natural disaster, power loss, or other events, including disruptive events associated with our ongoing expansion of the facility, could interrupt manufacturing, contributing to lengthy shipment delays that could have a negative impact on customers and, in turn, our customer relationships.
Substantial damage to our manufacturing facility due to fire, natural disaster, power loss, or other events, could interrupt manufacturing, contributing to lengthy shipment delays that could have a negative impact on customers and, in turn, our customer relationships.
As addressed in our discussion herein of market characteristics, exports to China and Hong Kong for 2022 totaled approximately $75,194,000, representing approximately 18.8% of total revenue for the year, and a reduction from the prior year. It’s not possible for us to predict whether this market will rebound as the Chinese government has eliminated their zero-COVID policy.
As addressed in our discussion herein of market characteristics, exports to China and Hong Kong for 2023 totaled approximately $71,554,000, representing approximately 17.7% of total revenue for the year, and a reduction from the prior year. It is not possible for us to predict whether this market will rebound as the Chinese government has eliminated their zero-COVID policy.
Net revenues from customers in China and Hong Kong, accounted for approximately 18.8% in 2022, approximately 27.5% in 2021, and approximately 31.4% in 2020, respectively, of total net revenues.
Net revenues from customers in China and Hong Kong, accounted for approximately 17.7% in 2023, approximately 18.8% in 2022, and approximately 27.5% in 2021 of total net revenues.
However, the costs of Section 301 Tariffs have had a material impact on our profitability. For the year ended December 31, 2022, Section 301 Tariffs totaled approximately $10,201,000, an increase of 52.8% over the $6,678,000 incurred for 2021.
However, the costs of Section 301 Tariffs have had a material impact on our profitability. For the year ended December 31, 2023, Section 301 Tariffs totaled approximately $7,985,000, a decrease of 21.7% over the $10,201,000 incurred for 2022. For the year ended December 31, 2021, costs associated with tariffs totaled approximately $6,678,000.
On December 24, 2019, elements of our network were compromised by a form of malware referred to as “ransomware.” In close collaboration with our service provider, we had restored computing and network functions to full operational status by the afternoon of December 27, 2019.
Any such events, if prolonged, could have a material and adverse effect on our operating results and financial condition. 14 Table of Contents On December 24, 2019, elements of our network were compromised by a form of malware referred to as “ransomware.” In close collaboration with our service provider, we had restored computing and network functions to full operational status by the afternoon of December 27, 2019.
While we carry business interruption insurance to offset financial losses from such an interruption, and cyber-risk insurance to address potential liabilities from such circumstances, such insurance may be insufficient to compensate us for the potentially significant costs or liabilities incurred. Any such events, if prolonged, could have a material and adverse effect on our operating results and financial condition.
While we carry business interruption insurance to offset financial losses from such an interruption, and cyber-risk insurance to address potential liabilities from such circumstances, such insurance may be insufficient to compensate us for the potentially significant costs or liabilities incurred.
We have in the past and may in the future receive communications from third parties asserting that our products or manufacturing processes infringe on a third party’s patent or other intellectual property rights. Such assertions, if publicly disclosed, have in the past and may in the future inhibit the willingness of potential customers to purchase certain of our products.
We have in the past received and may in the future receive communications from third parties asserting that our products or manufacturing processes infringe on a third party’s patent or other intellectual property rights.
Global economic uncertainty associated with the COVID-19 pandemic could materially and adversely affect our business and consolidated operating results. During 2020, global economic conditions varied by region, and were rapidly and significantly influenced by the COVID-19 pandemic.
Global economic uncertainty associated with the COVID-19 pandemic could materially and adversely affect our business and consolidated operating results.
We generally offer a two-year warranty from the date title passes from us for all of our standard products. The warranty period is three years for a range of H Grade, M Grade and MI Family DC-DC legacy products. In a limited number of circumstances, we have entered into supply contracts with certain high-volume customers calling for extended warranty terms.
We generally offer a two-year warranty from the date title passes from us for all of our standard products. The warranty period is three years for a range of H Grade, M Grade and MI Family DC-DC legacy products.
We cannot offer any assurance the markets we currently serve will grow in the future, our Advanced Products or Brick Products will meet respective market requirements, or we can maintain adequate gross margins or operating profits in these markets. Intellectual Property Risks We may be unable to adequately protect our proprietary rights, which may limit our ability to compete effectively.
We cannot offer any assurance the markets we currently serve will grow in the future, our Advanced Products or Brick Products will meet respective market requirements, or we can maintain adequate gross margins or operating profits in these markets.
Accordingly, the market float for our Common Stock and average daily trading volumes are relatively small, which may negatively impact investors’ ability to buy or sell shares of our Common Stock in a timely manner. Dr. Vinciarelli owns 93.8% of the issued and outstanding shares of our Class B Common Stock, which possess 10 votes per share. Dr. Estia J.
Accordingly, the market float for our Common Stock and average daily trading volumes are relatively small, which may negatively impact investors’ ability to buy or sell shares of our Common Stock in a timely manner. 19 Table of Contents Dr.
Extended interruption of production at our manufacturing facility in Andover, Massachusetts, could materially reduce our revenue, increase our costs, and, potentially, negatively impact our customers. The majority of our power components and power systems, whether for direct sale to customers or for sale to our subsidiaries for incorporation into their respective products, are manufactured in our Andover facility.
The majority of our power components and power systems, whether for direct sale to customers or for sale to our subsidiaries for incorporation into their respective products, are manufactured in our Andover facility.
We operate in an industry in which the ability to compete depends on the development or acquisition of proprietary technologies that must be protected to preserve the exclusive use of such technologies. We devote substantial resources to establish and protect our patents and proprietary rights, and we rely on patent and intellectual property law to protect such rights.
Intellectual Property Risks 17 Table of Contents We may be unable to adequately protect our proprietary rights, which may limit our ability to compete effectively. We operate in an industry in which the ability to compete depends on the development or acquisition of proprietary technologies that must be protected to preserve the exclusive use of such technologies.
Such further actions may have a negative influence on our costs and productivity and, in turn, our financial and operational performance. Our customers, business partners, and suppliers have been and may continue to be adversely affected by the COVID-19 pandemic, which also may contribute to a negative influence on our future financial and operational performance.
Our customers, business partners, and suppliers have been and may continue to be adversely affected by the COVID-19 pandemic, which also may contribute to a negative influence on our future financial and operational performance. Competitive Risks We compete with many companies possessing far greater resources.
An effective internal control environment is necessary for us to produce reliable financial reports and is an important part of our effort to prevent financial fraud. Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”) requires our management to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal control over financial reporting.
Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”) requires our 18 Table of Contents management to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal control over financial reporting.
The labor market for skilled and unskilled workers has been very tight over the past year, and at times we have experienced longer than normal times in recruiting necessary resources, and have had to increase compensation to attract and retain employees.
The labor market for skilled and unskilled workers has been very tight over the past year, and at times we have experienced longer than normal times in recruiting necessary resources, and have had to increase compensation to attract and retain employees. 15 Table of Contents Our operations could be affected by the complex laws, rules and regulations to which our business is subject, and political and other actions may adversely impact our business.
With our distribution partners, we also enter into contracts providing for our product warranties to transfer to the end customer upon final sale of our product(s) by the distributor. 18 We invest significant resources in the testing of our products; however, if any of our products contain defects, we may be required to incur additional development and remediation costs, pursuant to our warranty policies.
We invest significant resources in the testing of our products; however, if any of our products contain defects, we may be required to incur additional development and remediation costs, pursuant to our warranty policies.
While we believe we have been successful to date in diversifying our Advanced Products customer base beyond early adopters, we cannot assure you our strategy will be successful and further diversification of customers will be achieved. 15 We may not be able to procure necessary key components or raw materials, or we may purchase excess raw material inventory or unusable inventory, which increases the risk of reserve charges to reduce the value of any inventory deemed excess or obsolete, thereby reducing our profitability.
We may not be able to procure necessary key components or raw materials, or we may purchase excess raw material inventory or unusable inventory, which increases the risk of reserve charges to reduce the value of any inventory deemed excess or obsolete, thereby reducing our profitability.
Eichten, a member of our Board of Directors, owns the majority of the balance of the Class B Common Stock issued and outstanding. As such, Dr. Vinciarelli, controlling in aggregate 80.0% of our outstanding voting securities, has effective control of our governance. 24
Vinciarelli owns 93.8% of the issued and outstanding shares of our Class B Common Stock, which possess 10 votes per share. Dr. Estia J. Eichten, a member of our Board of Directors, owns the majority of the balance of the Class B Common Stock issued and outstanding. As such, Dr.
This protection, however, may not prevent competitors from independently developing products similar or superior to our products.
We devote substantial resources to establish and protect our patents and proprietary rights, and we rely on patent and intellectual property law to protect such rights. This protection, however, may not prevent competitors from independently developing products similar or superior to our products.
Removed
As previously disclosed, we rely on a third-party partner to provide certain manufacturing steps associated with a proprietary Advanced Products packaging process. This process, developed with the third-party partner, involves complex electroplating, performed on equipment developed by the third-party partner.
Added
While we believe we have been successful to date in diversifying our Advanced Products customer base beyond early adopters, we cannot assure you our strategy will be successful and further diversification of customers will be achieved, nor can we assure you that customers using one generation of our Advanced Products will adopt the next generation.
Removed
An important, differentiating benefit of this proprietary process is that it does not generate problematic effluent, resulting in an environmentally safe approach to electroplating, with minimal waste. We have entered into agreements with the third-party partner for production and transfer of technologies and process know-how, including the purchase of the enabling equipment developed by the third-party partner.
Added
Extended interruption of production at our manufacturing facility in Andover, Massachusetts, or a failure to achieve anticipated efficiencies could materially reduce our revenue, increase our costs, and, potentially, negatively impact our customers.
Removed
To date, we have successfully relied upon this third-party partner to perform these manufacturing steps, although we have experienced delivery delays and higher costs associated with the third-party partner’s volume constraints. This experience has caused us to establish our own high-volume capabilities in-house, modifying, in 2020, our construction plans to accommodate a dedicated, on-premises electroplating process facility.
Added
In addition, work is underway to bring in-house an additional final step associated with the manufacture of power modules, which step is now conducted by a subcontractor at the subcontractor’s facilities. Once this additional manufacturing step has been completed, we may not achieve the anticipated production volumes and operating efficiencies.
Removed
We expect 16 to rely on our third-party partner for production requirements through the installation and qualification for production of the enabling equipment in the addition to our Andover manufacturing facility. We may also rely on our third-party partner in the future for surge capacity requirements.
Added
While the COVID-19 pandemic is for the most part behind us, with limited incidents at Vicor in 2023, there is a continued risk that the virus will return and we are not able to predict the impact a further outbreak could have on our business, financial condition or results of operations.
Removed
If the third-party partner cannot deliver sufficient volumes to us, if we are unable to complete our facility expansion in a timely manner, or if we are unable to effectively implement the new manufacturing processes, we may not be able to achieve the expected volumes or production capacity and, as a result, may experience reduced manufacturing yields, delays in product deliveries, and/or increased expenses, any of which could negatively influence our financial condition and results of operations.
Added
Such assertions, if publicly disclosed, have in the past inhibited and may in the future inhibit the willingness of potential customers to purchase certain of our products.
Removed
The addition to our facility includes installation of certain equipment and implementation of certain manufacturing steps associated with Advanced Products manufacturing processes we currently outsource to a third-party partner, as described above. These manufacturing processes are associated with a proprietary packaging approach requiring complex electroplating processes using environmentally safe technologies.
Added
An effective internal control environment is necessary for us to produce reliable financial reports and is an important part of our effort to prevent financial fraud.
Removed
Given our volume expectations and the proprietary elements of these processes, we have chosen to accelerate the development of a captive capacity that we expect will exceed the total capacity available from our third-party partner.
Added
Vinciarelli, controlling in aggregate 79.8% of our outstanding voting securities, has effective control of our governance.
Removed
Today, we own and operate, with our employees, certain equipment on premises at our third-party partner and, as such, have established a level of operational competence we believe will enable us to successfully install and implement these manufacturing processes internally.
Removed
However, we may experience delays and incur additional costs during 2023 in implementing the manufacturing processes, given the complexity of the installation and qualification of the equipment.
Removed
An extended delay in completing our capacity expansion (and implementing new manufacturing processes) could have a material adverse effect on our results of operations and negatively impact our ability to execute on our Advanced Products strategy.
Removed
Once the facility expansion has been completed and all manufacturing equipment installed and qualified for volume production, we may not achieve the anticipated production volumes and operating efficiencies.
Removed
We are currently party to a limited number of supply agreements with certain customers contractually committing us to warranty and indemnification requirements exceeding those to which we have been exposed in the past.
Removed
While we maintain insurance coverage for such exposure, we could incur significant financial cost beyond the limits of such coverage, as well as operational disruption and damage to our competitive position and image if faced with a significant product warranty or other claim.
Removed
Our operations could be affected by the complex laws, rules and regulations to which our business is subject, and political and other actions may adversely impact our business.
Removed
The COVID-19 pandemic and the response of governments worldwide to contain its spread negatively influenced our financial and operational performance for all four quarters of 2020, and in subsequent years including in 2022, and future developments may have a potentially more substantial negative influence on our financial and operational performance over an unknown period of time.
Removed
Our deliveries to and orders from North American industrial and defense electronics customers declined sharply at the onset of the pandemic, during the first quarter of 2020, given reduced manufacturing activity and broad uncertainty. The second half of 2020 saw a recovery of North American activity to pre-pandemic levels. Further growth continued through 2021.
Removed
We have taken action to protect the health and safety of our workforce and to otherwise minimize the potential impact of the coronavirus on our operations, the costs of which, to date, have not had a material effect on our financial performance.
Removed
We expect to maintain the measures put in place until we determine the COVID-19 pandemic is adequately contained for purposes of our business, and we may take further actions we consider to be in the best interests of our employees, customers, business partners, and suppliers or in response to government mandate or requirement.
Removed
Regulations related to conflict minerals could adversely impact our business. The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions to improve transparency and accountability concerning the supply of certain minerals, known as conflict minerals (including gold, tantalum, tin, and tungsten, and their related ores), originating from the Democratic Republic of Congo (“DRC”) and adjoining countries.
Removed
As a result, in August 2012 the SEC released final rules for annual disclosure and reporting for those companies who use conflict minerals mined from the DRC and adjoining countries in their products.
Removed
We began to implement processes within our supply chain to comply with these rules beginning in 2012, filed our initial Form SD in May 2014, and have filed Form SD annually since then.
Removed
There have been and will continue to be costs associated with complying with these disclosure requirements, including due diligence to determine the sources of conflict minerals used in our products and other potential changes to products, processes, or sources of supply as a consequence of such verification activities.
Removed
The implementation of these rules could adversely affect the sourcing, supply, and pricing of materials used in our products. As there may be 23 only a limited number of suppliers offering “conflict free” conflict minerals, we cannot be certain we will be able to obtain necessary conflict minerals from such suppliers in sufficient quantities or at competitive prices.
Removed
Also, we may face reputational challenges if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to sufficiently verify the origins for all conflict minerals used in our products through the procedures we may implement.

Item 2. Properties

Properties — owned and leased real estate

3 edited+0 added−0 removed1 unchanged
Biggest changeCompletion of the construction and production have been delayed from 2021 to 2023. We have received an occupancy permit for the addition and equipment installation is underway. We own a single-story industrial building of approximately 31,000 square feet in Sunnyvale, California, which we lease on a long-term basis to a corporate tenant, which has occupied the building since June 2016.
Biggest changeWe took occupancy of this addition during the first half of 2022 and the completion of the installation of advanced plating operations was completed in 2023. We own a single-story industrial building of approximately 31,000 square feet in Sunnyvale, California, which we have leased on a long-term basis to a corporate tenant, which has occupied the building since June 2016.
Current capital investments are focused on the expansion of manufacturing capacity for the production of Advanced Products at our Andover facility. During 2020, we began construction of a two-story addition to our Andover manufacturing facility that is intended to expand the Advanced Products production area by approximately 90,000 square feet.
Current capital investments are focused on the expansion of manufacturing capacity for the production of Advanced Products at our Andover facility. During 2020, we began construction of a two-story addition to our Andover manufacturing facility to expand the Advanced Products production area by approximately 90,000 square feet. Completion of the construction and production had been delayed from 2021 to 2023.
All other domestic and foreign facilities are leased from third-party lessors on arms’ length terms. We believe our owned and leased facilities are adequate for our foreseeable needs.
We are currently negotiating with such corporate tenant regarding the renewal of this lease. All other domestic and foreign facilities are leased from third-party lessors on arms’ length terms. We believe our owned and leased facilities are adequate for our foreseeable needs.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

4 edited+3 added−1 removed3 unchanged
Biggest changeComparison of Five Year Cumulative Return Among Vicor Corporation, S&P 500 Index, S&P SmallCap 600 Index, and S&P MidCap 400 Index 2017 2018 2019 2020 2021 2022 Vicor Corporation $100.00 $ 180.81 $ 223.54 $ 441.24 $ 607.56 $ 257.15 S&P 500 Index $100.00 $ 95.62 $ 125.72 $ 148.85 $ 191.58 $ 156.88 S&P SmallCap 600 Index $100.00 $ 91.52 $ 112.37 $ 125.05 $ 158.59 $ 133.06 S&P MidCap 400 Index $100.00 $ 88.92 $ 112.21 $ 127.54 $ 159.12 $ 138.34 Our equity plan information required by this item is incorporated by reference to the information in Part III, Item 12 of this Annual Report on Form 10-K.
Biggest changeThe historical information set forth below is not necessarily indicative of future performance. 22 Table of Contents Comparison of Five Year Cumulative Return Among Vicor Corporation, S&P 500 Index, S&P SmallCap 600 Index, and S&P MidCap 400 Index 2018 2019 2020 2021 2022 2023 Vicor Corporation $ 100.00 $ 123.63 $ 244.03 $ 336.01 $ 142.22 $ 118.89 S&P 500 Index $ 100.00 $ 131.49 $ 155.68 $ 200.37 $ 164.08 $ 207.21 S&P SmallCap 600 Index $ 100.00 $ 122.78 $ 136.64 $ 173.29 $ 145.39 $ 168.73 S&P MidCap 400 Index $ 100.00 $ 126.20 $ 143.44 $ 178.95 $ 155.58 $ 181.15 Our equity plan information required by this item is incorporated by reference to the information in Part III, Item 12 of this Annual Report on Form 10-K.
Month of Fourth Quarter 2022 Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased Pursuant to November 2000 Plan Remaining Dollar Value of Shares Authorized For Purchase Pursuant to November 2000 Plan October 1 — 31, 2022 — $ — — $ 8,541,000 November 1 — 30, 2022 — $ — — $ 8,541,000 December 1 — 31, 2022 — $ — — $ 8,541,000 Total — $ — — $ 8,541,000 Stockholder Return Performance Graph The graph set forth below presents the cumulative, five-year stockholder return for each of (i) the Company’s Common Stock, (ii) the Standard & Poor’s 500 Index (“S&P 500 Index”), a value-weighted index made up of 500 of the largest, by market capitalization, listed companies, (iii) the Standard & Poor’s SmallCap 600 Index (“S&P SmallCap 600 Index”), a value-weighted index of 600 listed companies with market capitalizations between $200,000,000 and $1,000,000,000, and (iv) the Standard & Poor’s MidCap 400 Index (“S&P MidCap 400 Index”), a value-weighted index of 400 listed companies with market capitalizations between $3,700,000,000 and $14,600,000,000.
Month of Fourth Quarter 2023 Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased Pursuant to November 2000 Plan Remaining Dollar Value of Shares Authorized For Purchase Pursuant to November 2000 Plan October 1 - 31, 2023 — $ — — $ 8,541,000 November 1 - 30, 2023 — $ — — $ 8,541,000 December 1 - 31, 2023 — $ — — $ 8,541,000 Total — $ — — $ 8,541,000 Stockholder Return Performance Graph The graph set forth below presents the cumulative, five-year stockholder return for each of (i) the Company’s Common Stock, (ii) the Standard & Poor’s 500 Index (“S&P 500 Index”), a value-weighted index made up of 500 of the largest, by market capitalization, listed companies, (iii) the Standard & Poor’s SmallCap 600 Index (“S&P SmallCap 600 Index”), a value-weighted index of 600 listed companies with market capitalizations between $750,000,000 and $4,600,000,000, and (iv) the Standard & Poor’s MidCap 400 Index (“S&P MidCap 400 Index”), a value-weighted index of 400 listed companies with market capitalizations between $4,600,000,000 and $12,700,000,000.
As of February 16, 2023, there were 95 holders of record of our Common Stock and 12 holders of record of our Class B Common Stock. These numbers do not reflect persons or entities that hold their shares in nominee or “street name” through various brokerage firms.
As of February 16, 2024, there were 96 holders of record of our Common Stock and 12 holders of record of our Class B Common Stock. These numbers do not reflect persons or entities that hold their shares in nominee or “street name” through various brokerage firms.
Due to the potential growth of the market capitalization of the Company, we were included within the S&P MidCap 400 Index and removed from the S&P SmallCap 600 Index in December 2021. 26 The graph assumes an investment of $100 on December 31, 2017, in each of our Common Stock, the S&P 500 Index, the S&P SmallCap 600 Index, and the S&P MidCap 400 Index, and assumes reinvestment of all dividends.
The graph assumes an investment of $100 on December 31, 2018, in each of our Common Stock, the S&P 500 Index, the S&P SmallCap 600 Index, and the S&P MidCap 400 Index, and assumes reinvestment of all dividends.
Removed
The historical information set forth below is not necessarily indicative of future performance.
Added
We have no formal policy regarding dividends and, as such, investors cannot make assumptions regarding the possibility of future dividend payments nor the amounts and timing thereof. As of December 31, 2023, we have no plans to declare or pay a cash dividend in the foreseeable future.
Added
We were included within the S&P MidCap 400 Index and removed from the S&P SmallCap 600 Index in December 2021. We were removed from the S&P MidCap 400 Index and included within the S&P SmallCap 600 Index in October 2023.
Added
The S&P SmallCap 600 Index and, previously, the S&P MidCap 400 Index were selected because they include or included (as applicable) companies with market capitalizations comparable to ours and because we do not believe that we can reasonably identify a published industry or line-of-business index or a specific peer group that would offer a meaningful comparison.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

40 edited+5 added−16 removed30 unchanged
Biggest changeSee Note 15 to the Consolidated Financial Statements for additional information. • We reported net income for 2022 of $25,446,000, or $0.57 per diluted share, compared to net income of $56,625,000, or $1.26 per diluted share, for 2021. • In 2022, as a result of activities associated with our construction and capacity expansion, depreciation and amortization totaled $13,776,000, and capital expenditures were $63,966,000, compared to $11,705,000 and $47,761,000, respectively, for 2021. • Inventories increased by approximately $34,088,000, or 50.6%, to $101,410,000 at the end of 2022, as compared to $67,322,000 at the end of 2021, primarily consisting of raw materials.
Biggest changeThe increase in gross margin dollars and gross margin percentage was primarily due to higher sales volume, improved sales mix, and certain reductions in supply chain costs and recovery of tariff costs. • Backlog, representing the total of orders received for products for which shipment is scheduled within the next 12 months, was approximately $160,805,000 at the end of 2023, as compared to $304,392,000 at the end of 2022 as a result of getting more current on overdue backlog. • Operating expenses for 2023 increased $213,000, or 0.1%, to $153,571,000 from $153,358,000 for 2022. • We reported net income for 2023 of $53,595,000, or $1.19 per diluted share, compared to net income of $25,446,000, or $0.57 per diluted share, for 2022. • In 2023, as a result of activities associated with our construction and capacity expansion, depreciation and amortization totaled $17,240,000, and capital expenditures were $33,452,000, compared to $13,776,000 and $63,966,000, respectively, for 2022. • Inventories increased by approximately $5,169,000, or 5.1%, to $106,579,000 at the end of 2023, as compared to $101,410,000 at the end of 2022, primarily consisting of raw materials.
Certain state tax credits, though, will 31 likely never be released by the valuation allowance. If and when the Company determines the valuation allowance should be released (i.e., reduced), the adjustment would result in a tax benefit reported in that period’s Consolidated Statements of Operations, the effect of which would be an increase in reported net income.
Certain state tax credits, though, will likely never be released by the valuation allowance. If and when the Company determines the valuation allowance should be released (i.e., reduced), the adjustment would result in a tax benefit reported in that period’s Consolidated Statements of Operations, the effect of which would be an increase in reported net income.
If the positive operating results continue, and the Company’s concerns about industry uncertainty and world events, supply and factory capacity constraints, and process issues with the production of Advanced Products are resolved, and the amount of tax benefits the Company is able to utilize to the point that the Company believes future taxable income can be more reliably forecasted, the Company may release a portion of the valuation allowance in the near-term.
If the positive operating results continue, and the Company’s concerns about industry uncertainty and world events, supply and factory capacity constraints, program adoption and process issues with the production of Advanced Products are resolved, and the amount of tax benefits the Company is able to utilize to the point that the Company believes future taxable income can be more reliably forecasted, the Company may release all or a portion of the valuation allowance in the near-term.
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 voltage distribution on server motherboards, in server racks, and across datacenter infrastructure.
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.
The following table sets forth certain items of selected consolidated financial information as a percentage of net revenues for the years ended December 31, 2022, 2021, and 2020. This table and the subsequent discussion should be read in conjunction with the Consolidated Financial Statements and related footnotes contained elsewhere in this report.
The following table sets forth certain items of selected consolidated financial information as a percentage of net revenues for the years ended December 31, 2023, 2022, and 2021. This table and the subsequent discussion should be read in conjunction with the Consolidated Financial Statements and related notes contained elsewhere in this report.
We did not repurchase shares of Common Stock under the November 2000 Plan during the year ended December 31, 2022. As of December 31, 2022, we had approximately $8,541,000 remaining for share purchases under the November 2000 Plan.
We did not repurchase shares of Common Stock under the November 2000 Plan during the year ended December 31, 2023. As of December 31, 2023, we had approximately $8,541,000 remaining for share repurchases under the November 2000 Plan.
Year Ended December 31, 2022 2021 2020 Net revenues 100.0 % 100.0 % 100.0 % Gross margin 45.2 % 49.6 % 44.3 % Selling, general and administrative expenses 21.6 % 19.3 % 21.3 % Research and development expenses 15.2 % 14.8 % 17.2 % Income before income taxes 7.2 % 15.8 % 6.2 % 30 Critical Accounting Policies and Estimates Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.
Year Ended December 31, 2023 2022 2021 Net revenues 100.0 % 100.0 % 100.0 % Gross margin 50.6 % 45.2 % 49.6 % Selling, general and administrative expenses 21.2 % 21.6 % 19.3 % Research and development expenses 16.8 % 15.2 % 14.8 % Income before income taxes 14.9 % 7.2 % 15.8 % Critical Accounting Policies and Estimates Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in 25 Table of Contents the United States (“U.S.
As a result, management has concluded, at this time, is more likely than not the Company’s net domestic deferred tax assets will not be realized, and a full valuation allowance against all net domestic deferred tax assets is still warranted as of December 31, 2022.
As a result, management has concluded, as of December 31, 2023, it is more likely than not the Company’s net domestic deferred tax assets will not be realized, and a full valuation allowance against all net domestic deferred tax assets is still warranted as of December 31, 2023.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview A discussion regarding our results of operations for the year ended December 31, 2021, compared to the year ended December 31, 2020, was included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, on pages 33-37 under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, which was filed with the SEC on March 1, 2022.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview A discussion regarding our results of operations for the year ended December 31, 2022, compared to the year ended December 31, 2021, was included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, on pages 32-35 under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, which was filed with the SEC on February 28, 2023.
Supply chain disruptions, including those associated with lockdowns in China due to their zero-COVID policy, 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.
Supply chain disruptions, including those associated with our reliance on outsourced package 24 Table of Contents 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.
As of December 31, 2022, we had a total of approximately $24,205,000 of cancelable and non-cancelable capital expenditure commitments, principally for manufacturing and production equipment, which we intend to fund with existing cash, and approximately $4,194,000 of capital expenditure items which had been received and included in Property, plant and equipment in the accompanying Consolidated Balance Sheets, but not yet paid for.
As of December 31, 2023, we had a total of approximately $15,014,000 of cancelable and non-cancelable capital expenditure commitments, principally for manufacturing and production equipment, which we intend to fund with existing cash, and approximately $2,168,000 of capital expenditure items and internal-use software which had been received and included in Property, plant and equipment in the accompanying Consolidated Balance Sheets, but not yet paid for.
Income before income taxes was $28,687,000 in 2022, as compared to $56,805,000 in 2021. 34 The provision for income taxes and the effective income tax rate for the years ended December 31 were as follows (dollars in thousands): 2022 2021 Provision for income taxes $ 3,261 $ 176 Effective income tax rate 11.4 % 0.3 % The effective tax rates were lower than the statutory tax rates for the year ended December 31, 2022 and 2021 primarily due to the Company’s full valuation allowance position against domestic deferred tax assets during both years.
The provision for income taxes and the effective income tax rate for the years ended December 31 were as follows (dollars in thousands): 2023 2022 Provision for income taxes $ 6,644 $ 3,261 Effective income tax rate 11.0 % 11.4 % The effective tax rates were lower than the statutory tax rates for the year ended December 31, 2023 and 2022 primarily due to the Company’s full valuation allowance position against domestic deferred tax assets during both years.
We also target applications in aerospace and aviation, defense electronics, industrial automation, instrumentation, test equipment, solid state lighting, telecommunications and networking infrastructure, and vehicles(notably in the autonomous driving, electric vehicle, and hybrid vehicle niches of the vehicle segment).
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).
We reported net income for the year ended December 31, 2022 of $25,446,000, or $0.57 per diluted share, as compared to $56,625,000, or $1.26 per diluted share, for the year ended December 31, 2021. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2022, we had $190,611,000 in cash and cash equivalents.
We reported net income for the year ended December 31, 2023 of $53,595,000, or $1.19 per diluted share, as compared to $25,446,000, or $0.57 per diluted share, for the year ended December 31, 2022. Liquidity and Capital Resources At December 31, 2023, we had $242,219,000 in cash and cash equivalents.
We believe cash generated from operations together with our available cash and cash equivalents and short-term investments will be sufficient to fund planned operational needs and capital equipment purchases for the foreseeable future.
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 the foreseeable future.
The primary use of cash during the year ended December 31, 2022 was $63,966,000 for the purchase of property and equipment and internal-use software. 35 In November 2000, our Board of Directors authorized the repurchase of up to $30,000,000 of Common Stock (the “November 2000 Plan”).
The primary use of cash during the year ended December 31, 2023 was $33,452,000 for the purchase of machinery and equipment and internal-use software. 29 Table of Contents In November 2000, our Board of Directors authorized the repurchase of up to $30,000,000 of Common Stock (the “November 2000 Plan”).
While we continue to make progress in moving outsourced manufacturing steps in-house to the Company, we are still experiencing long lead times on certain raw material components, sporadic disruptions related to shutdowns in China as a result of their zero-COVID policy, and uncertainty of output from our outsourced manufacturing supplier.
While we continue to make progress in moving outsourced manufacturing steps in-house to the Company, we are still experiencing long lead times on certain raw material components, and uncertainty of output from our outsourced manufacturing supplier.
Gross margin, as a percentage of net revenues decreased to 45.2% for 2022 from 49.6% for 2021.
Gross margin, as a percentage of net revenues increased to 50.6% for 2023 from 45.2% for 2022.
(2) Increase primarily attributable to an increase in headcount, annual compensation adjustments in May 2022, and higher stock-based compensation expense associated with stock options awarded in April 2022. (3) Increase primarily attributable to increases in sales support expenses, direct mailings, and advertising in trade publications. (4) Increase attributable to net additions of furniture and fixtures and capitalization of building improvements.
(2) Increase primarily attributable to annual compensation adjustments in May 2023 and higher stock-based compensation expense associated with stock options awarded in May 2023. (3) Increase attributable to net additions of furniture and fixtures and capitalization of building improvements. (4) Increase primarily attributable to an increase in computer and software expenses.
See Note 2 – Significant Accounting Policies – Impact of recently issued accounting standards , to the Consolidated Financial Statements for a description of recently issued and adopted accounting pronouncements, including the dates of adoption and expected impact on our financial position and results of operations.
See Note 2 – Significant Accounting Policies – Impact of recently issued accounting standards , to the Consolidated Financial Statements for a description of recently issued and adopted accounting pronouncements, including the dates of adoption and expected impact on our financial position and results of operations. 26 Table of Contents Other new pronouncements issued but not effective until after December 31, 2023 are not expected to have a material impact on our consolidated financial statements.
The ratio of current assets to current liabilities was 5.6:1 at December 31, 2022, as compared to 7.3:1 at December 31, 2021. Net working capital decreased $9,612,000 to $298,055,000 at December 31, 2022 from $307,667,000 at December 31, 2021.
The ratio of current assets to current liabilities was 9.5:1 at December 31, 2023, as compared to 5.6:1 at December 31, 2022. Net working capital increased $78,142,000 to $376,197,000 at December 31, 2023 from $298,055,000 at December 31, 2022.
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.
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.
The provision for income taxes for the years ended December 31, 2022 and 2021 included estimated federal, state and foreign income taxes in jurisdictions in which the Company does not have sufficient tax attribute, offset by excess tax benefits related to stock based compensation during those periods.
The provision for income taxes for the years ended December 31, 2023 and 2022 included estimated federal, state and foreign income taxes in jurisdictions in which the Company does not have sufficient tax attributes.
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, aside from recent increases in legal expense associated with the intellectual property litigation with SynQor Inc., are largely associated with compensation and related employee costs, which are not subject to sudden or significant changes.
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. 2023 Financial Highlights • Net revenues increased 1.5% to $405,059,000 for 2023, from $399,079,000 for 2022.
With our Brick Products, we generally serve a fragmented base of large and small customers, concentrated in aerospace and 28 defense electronics, industrial automation, industrial equipment, instrumentation and test equipment, and transportation (notably in rail and heavy equipment applications).
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.
Net revenues for Brick Products for 2022 decreased compared to 2021, primarily due to unfavorable market conditions. • Export sales, as a percentage of total revenues, represented approximately 67.6% in 2022 and 67.0% in 2021. • Gross margin increased to $180,559,000 for 2022, from $178,200,000 for 2021.
Net revenues for Advanced Products for 2023 decreased compared to 2022, primarily due to manufacturing constraints, customer demand and schedule delays. • Export sales, as a percentage of total revenues, represented approximately 63.1% in 2023 and 67.6% in 2022. • Gross margin increased to $204,929,000 for 2023, from $180,559,000 for 2022.
The primary working capital changes were due to the following (in thousands): Increase (decrease) Cash and cash equivalents $ 8,193 Short-term investments (45,215 ) Accounts receivable 10,332 Inventories 34,088 Other current assets (1,554 ) Accounts payable (1,018 ) Accrued compensation and benefits 1,904 Accrued expenses (4,455 ) Sales allowances (197 ) Accrued litigation (6,500 ) Short-term lease liabilities 101 Income taxes payable (6 ) Short-term deferred revenue and customer prepayments (5,285 ) $ (9,612 ) The primary sources of cash for the year ended December 31, 2022 were $22,939,000 of cash generated from operations, $45,000,000 of cash from the sale or maturities of short-term investments, and $4,439,000 of cash 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 working capital changes were due to the following (in thousands): Increase (decrease) Cash and cash equivalents $ 51,608 Accounts receivable (12,798 ) Inventories 5,169 Other current assets 13,783 Accounts payable 10,107 Accrued compensation and benefits (369 ) Accrued expenses 3,511 Sales allowances (1,821 ) Short-term lease liabilities (414 ) Income taxes payable (674 ) Short-term deferred revenue and customer prepayments 10,040 $ 78,142 The primary sources of cash for the year ended December 31, 2023 were $74,528,000 of cash generated from operations and $10,602,000 of cash 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 decrease in net revenues for Brick Products was primarily due to unfavorable market conditions. Gross margin for 2022 increased $2,359,000, or 1.3%, to $180,559,000 from $178,200,000 in 2021. Gross margin as a percentage of net revenues decreased to 45.2% in 2022 from 49.6% in 2021.
The increase in net revenues for Brick Products was primarily due to favorable market conditions and pricing, and available capacity for manufacturing Brick Products. Gross margin for 2023 increased $24,370,000, or 13.5%, to $204,929,000 from $180,559,000 in 2022. Gross margin as a percentage of net revenues increased to 50.6% in 2023 from 45.2% in 2022.
The significant changes in the components of “Other income (expense), net” for the years ended December 31 were as follows (in thousands): Increase 2022 2021 (decrease) Interest income, net $ 1,313 $ 930 $ 383 Rental income, net 792 792 — Foreign currency losses, net (653 ) (336 ) (317 ) Other, net 34 (183 ) 217 $ 1,486 $ 1,203 $ 283 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.
The significant changes in the components of "Other income (expense), net" for the years ended December 31 were as follows (in thousands): Increase 2023 2022 (decrease) Interest income, net $ 8,217 $ 1,313 $ 6,904 Rental income, net 792 792 — Foreign currency losses, net (161 ) (653 ) 492 Other, net 38 34 4 $ 8,886 $ 1,486 $ 7,400 28 Table of Contents Our exposure to market risk fluctuations in foreign currency exchange rates relates to the operations of Vicor Japan Company, Ltd.
The Company faces uncertainties in forecasting its operating results due to vendor supply and factory capacity constraints, certain process issues with the production of Advanced Products and the unpredictability in certain markets. This operating uncertainty also makes it difficult to predict the availability and utilization of tax benefits over the next several years.
Despite recent positive operating results, the Company faces uncertainties in forecasting its operating results due to vendor supply and factory capacity constraints, certain process issues with the production of Advanced Products and the unpredictability in certain markets, product transitions, new program introductions and adoption times of new technology offerings.
As a percentage of net revenues, selling, general, and administrative expenses increased to 21.6% in 2022 from 19.3% in 2021. 32 The components of the $16,780,000 increase in selling, general, and administrative expenses were as follows (dollars in thousands): Increase (decrease) Legal fees $ 11,083 341.5 %(1) Compensation 2,772 6.2 %(2) Advertising expenses 924 27.3 %(3) Depreciation and amortization 907 26.6 %(4) Travel expense 894 68.5 %(5) Outside services 598 23.5 %(6) Audit, tax, and accounting fees 447 21.2 %(7) Computer and software expense 293 24.2 %(8) Commissions (349 ) (10.8 )%(9) Facilities allocations (845 ) (51.9 )%(10) Other, net 56 2.0 % $ 16,780 24.1 % (1) Increase primarily attributable to an increase in activity related to the SynQor litigation and for certain corporate legal matters.
The components of the $550,000 decrease in selling, general, and administrative expenses were as follows (dollars in thousands): Increase (decrease) Legal fees $ (6,000 ) (41.9 )% (1 ) Travel expense 303 13.8 % (2 ) Depreciation and amortization 348 8.1 % (3 ) Advertising expenses 605 14.0 % (4 ) Commissions 792 27.4 % (5 ) Outside services 1,253 46.5 % (6 ) Compensation 1,592 3.4 % (7 ) Other, net 557 7.0 % $ (550 ) (0.6 )% 27 Table of Contents (1) Decrease primarily attributable to a decrease in activity related to the SynQor litigation offset by increases in certain corporate legal matters.
Other new pronouncements issued but not effective until after December 31, 2022 are not expected to have a material impact on our consolidated financial statements. Year ended December 31, 2022 compared to Year ended December 31, 2021 Consolidated net revenues for 2022 were $399,079,000, an increase of $39,715,000, or 11.1%, as compared to $359,364,000 for 2021.
Year ended December 31, 2023 compared to Year ended December 31, 2022 Consolidated net revenues for 2023 were $405,059,000, an increase of $5,980,000, or 1.5%, as compared to $399,079,000 for 2022.
As a percentage of net revenues, research and development expenses increased to 15.2% in 2022 from 14.8% in 2021. 33 The components of the $7,480,000 increase in research and development expenses were as follows (dollars in thousands): Increase Compensation $ 2,540 6.6 %(1) Supplies 1,233 79.4 %(2) Project and pre-production materials 1,130 15.1 %(3) Overhead absorption 499 20.8 %(4) Depreciation and amortization 332 15.8 %(5) Facilities allocations 320 11.7 %(6) Computer and software expense 316 42.3 %(7) Outside services 219 38.1 % Freight 155 60.9 % Travel expense 130 67.1 % Other, net 606 37.5 % $ 7,480 14.1 % (1) Increase primarily attributable to an increase in headcount, annual compensation adjustments in May 2022, and higher stock-based compensation expense associated with stock options awarded in April 2022.
The components of the $7,263,000 increase in research and development expenses were as follows (dollars in thousands): Increase (decrease) Project and pre-production materials $ 3,632 42.3 % (1 ) Compensation 2,685 6.6 % (2 ) Depreciation and amortization 352 14.5 % (3 ) Computer and software expense 331 31.1 % (4 ) Outside services 291 42.0 % (5 ) Deferred costs (231 ) (63.2 )% (6 ) Other, net 203 2.8 % $ 7,263 12.0 % (1) Increase primarily attributable to increased prototype development costs for Advanced Products.
Net revenues, by product line, for the years ended December 31 were as follows (dollars in thousands): Increase (decrease) 2022 2021 $ % Advanced Products $ 243,321 $ 170,220 $ 73,101 42.9 % Brick Products 155,758 189,144 (33,386 ) (17.7 )% Total $ 399,079 $ 359,364 $ 39,715 11.1 % Changes in our net revenues are primarily attributable to fluctuations in shipment volumes.
Net revenues, by product line, for the years ended December 31 were as follows (dollars in thousands): Increase (decrease) 2023 2022 $ % Advanced Products $ 223,893 $ 243,321 $ (19,428 ) (8.0 )% Brick Products 181,166 155,758 25,408 16.3 % Total $ 405,059 $ 399,079 $ 5,980 1.5 % The decrease in net revenues for Advanced Products was primarily due to manufacturing constraints, customer demand and schedule delays.
Selling, general, and administrative expenses were $86,264,000 for 2022, an increase of $16,780,000, or 24.1%, as compared to $69,484,000 for 2021.
Selling, general, and administrative expenses were $85,714,000 for 2023, a decrease of $550,000, or 0.6%, as compared to $86,264,000 for 2022. As a percentage of net revenues, selling, general, and administrative expenses decreased to 21.2% in 2023 from 21.6% in 2022.
The increase was primarily in sales of Advanced Products, due to growth in the high performance compute business.
The increase was primarily in sales of Brick Products due to favorable market conditions and pricing, and available capacity for manufacturing Brick Products.
The increase in gross margin dollars and decrease in gross margin percentage was attributable to favorable higher volumes, offset by production inefficiencies and certain increases in supply chain costs, including an increase of $9,986,000 in outsourced manufacturing costs of certain Advanced Products, and an increase of $5,799,000 in freight-in and tariff (net of “duty drawback”) costs.
The increase in gross margin dollars and gross margin percentage was primarily due to higher sales volume, improved sales mix, and certain reductions in supply chain costs, including a reduction of $9,950,000 in outsourced manufacturing costs partially offset by incremental costs of bringing production in-house for certain Advanced Products, and a reduction of freight-in and tariff spending of $12,747,000 (net of approximately $6,954,000 in duty drawback recovery of previously paid tariffs in the twelve months ended December 31, 2023 and $229,000 in duty drawback recovery in the twelve months ended December 31, 2022).
Dollar. These subsidiaries in Europe and Asia experienced more unfavorable foreign currency exchange rate fluctuations in 2022 compared to 2021. “Interest income (expense), net” includes an immaterial error correction of $834,000 related to the amortization of bond premiums on available for sale securities.
In 2023, interest income, net increased due to higher interest rates received on the cash and cash equivalents balance held by the Company. In 2022, "Interest income, net" includes an immaterial error correction of $834,000 related to the amortization of bond premiums on available-for-sale securities. Income before income taxes was $60,244,000 in 2023, as compared to $28,687,000 in 2022.
(6) Increase primarily attributable to an increase in utilities and building maintenance expenses. (7) Increase primarily attributable to an increase in computer and software expenses. Litigation-related expense was $6,500,000 for 2022 which related to the SynQor litigation, as compared to $0 for 2021. See Note 15 to the Consolidated Financial Statements for additional information.
(5) Increase primarily attributable to an increase in the use of consultants. (6) Decrease primarily attributable to an increase in deferred costs capitalized for certain non-recurring engineering projects for which the related revenues had been deferred. Litigation-contingency expense was $6,500,000 for 2022, which related to the SynQor litigation, as compared to $0 for 2023.
(9) Decrease primarily attributable to a decrease in net revenues subject to commissions. (10) Decrease primarily attributable to a decrease in utilities and building maintenance expenses. Research and development expenses increased $7,480,000, or 14.1%, to $60,594,000 in 2022 from $53,114,000 in 2021.
Research and development expenses increased $7,263,000, or 12.0%, to $67,857,000 in 2023 from $60,594,000 in 2022. As a percentage of net revenues, research and development expenses increased to 16.8% in 2023 from 15.2% in 2022.
Removed
Ongoing / Potential Impacts of the COVID-19 Pandemic on the Company As of the date of this report, the number of Company employees diagnosed with COVID-19 and the corresponding absenteeism due to COVID-19 are negligible.
Added
This operating uncertainty also makes it difficult to predict the availability and utilization of tax benefits over the next several years.
Removed
While the productivity of our factory is not currently impacted by COVID-19, productivity may be reduced if quarantine rates increase or if the number of employees diagnosed with COVID-19 requires further implementation of restrictive health and safety measures, including factory closure.
Added
(2) Increase primarily attributable to an increase in travel by the Company’s sales and marketing personnel. (3) Increase attributable to net additions of furniture and fixtures and capitalization of building improvements. (4) Increase primarily attributable to increases in sales support expenses, direct mailings, and advertising in trade publications.
Removed
We continue to operate with three shifts in our factory, and, with few exceptions, our engineering, sales, and administrative personnel are working from the Company’s offices.
Added
(5) Increase primarily attributable to an increase in net revenues subject to commissions. (6) Increase primarily attributable to an increase in the use of consultants. (7) Increase primarily attributable to annual compensation adjustments in May 2023 and higher stock-based compensation expense associated with stock options awarded in May 2023.
Removed
We are closely monitoring the operating performance and financial health of our customers, business partners, and suppliers, but an extended period of operational constraints brought about by the pandemic could cause financial hardship within our customer base and supply chain. Such hardship may continue to disrupt customer demand and limit our customers’ ability to meet their obligations to us.
Added
See Note 15 to the Consolidated Financial Statements for additional information.
Removed
Similarly, such hardship within our supply chain could continue to restrict our access to raw materials or services. Additionally, restrictions or disruptions of transportation, such as reduced availability of cargo transport by ship or air, have resulted and may continue to result in higher costs and inbound and outbound delays.
Added
("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 more favorable foreign currency exchange rate fluctuations in 2023 compared to 2022.
Removed
Although there is uncertainty regarding the extent to which the pandemic will continue to impact our operational and financial results in the future, the Company’s high level of liquidity, flexible operational model, existing raw material inventories, and increased use of second sources for critical manufacturing inputs together support management’s belief the Company will be able to effectively conduct business until the pandemic passes. 29 We are monitoring the rapidly changing circumstances, and may take additional actions to address COVID-19 risks as they evolve.
Removed
Because much of the potential negative impact of the pandemic is associated with risks outside of our control, we cannot estimate the extent of such impact on our financial or operational performance, or when such impact might occur. 2022 Financial Highlights • Net revenues increased 11.1% to $399,079,000 for 2022, from $359,364,000 for 2021.
Removed
The increase in gross margin dollars and decrease in gross margin percentage was attributable to favorable higher volumes, offset by production inefficiencies and certain supply chain costs. • Backlog, representing the total of orders received for products for which shipment is scheduled within the next 12 months, was approximately $304,392,000 at the end of 2022, as compared to $345,594,000 at the end of 2021. • Operating expenses for 2022 increased $30,760,000, or 25.1%, to $153,358,000 from $122,598,000 for 2021, due to increases in selling, general, and administrative expenses of $16,780,000 and research and development expenses of $7,480,000.
Removed
The increase in selling, general, and administrative expenses was primarily due to an increase in legal fees of $11,083,000 and compensation expense of $2,772,000. The increase in research and development expenses was primarily due to increases in compensation expense of $2,540,000, supplies of $1,233,000 and project and pre-production materials of $1,130,000.
Removed
In addition, litigation-related expense related to the SynQor litigation was $6,500,000 for 2022.
Removed
Despite recent positive operating results, the Company is in a cumulative loss position as of December 31, 2022, primarily due to tax deductions on 2020 and 2021 exercises of stock-based compensation.
Removed
Our net revenue can be affected by changes in demand for higher priced or lower priced products, which we refer to as changes in the mix of products shipped. The increase in net revenues for Advanced Products was primarily the result of growth in the high performance compute business, in the United States and Asia Pacific markets.
Removed
(5) Increase primarily attributable to an increase in travel by the Company’s sales and marketing personnel. (6) Increase primarily attributable to an increase in the use of outside service providers at our Andover, MA facility. (7) Overall increase in audit and tax fees. (8) Increase primarily attributable to an increase in computer and software expenses.
Removed
(2) Increase in engineering supplies. (3) Increase primarily attributable to increased prototype development costs for Advanced Products. (4) Increase primarily attributable to a decrease in R&D personnel incurring time on production activities, compared to R&D activities. (5) Increase attributable to net additions of furniture and fixtures and capitalization of building improvements.
Removed
As of December 31, 2022, we had approximately $2,936,000 of remaining capital expenditures expected to be incurred through the remainder of 2023 associated with the construction of a 90,000 sq. ft. addition to the Company’s existing manufacturing facility and the installation of new manufacturing and production equipment.
Removed
Our primary needs for liquidity are for making continuing investments in manufacturing and production equipment and for funding the construction of the additional manufacturing space adjoining our existing Andover manufacturing facility (as described above), including architectural and construction costs.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

6 edited+0 added−0 removed5 unchanged
Biggest changeWhile we believe risk to fluctuations in foreign currency rates for these subsidiaries is generally not significant, they can be subject to substantial currency changes, and therefore foreign exchange exposures. 37 P3Y0.010.010.010.01http://fasb.org/us-gaap/2022#PropertyPlantAndEquipmentNethttp://fasb.org/us-gaap/2022#OperatingIncomeLoss
Biggest changeWhile we believe risk to fluctuations in foreign currency rates for these subsidiaries is generally not significant, they can be subject to substantial currency changes, and therefore foreign exchange exposures. 30 Table of Contents
Our exposure to market risk for fluctuations in foreign currency exchange rates relates primarily to the operations of VJCL, for which the functional currency is the Japanese Yen, and changes in the relative value of 36 the Yen to the U.S. Dollar.
Our exposure to market risk for fluctuations in foreign currency exchange rates relates primarily 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.
As of December 31, 2022, our long-term investment portfolio, recorded on our 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.
As of December 31, 2023, our long-term investment portfolio, recorded on our 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.
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 December 31, 2022.
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 December 31, 2023.
We estimate our annual interest income would change by approximately $30,000 in 2022 for each 100 basis point increase or decrease in interest rates.
We estimate our annual interest income would change by approximately $30,000 in 2023 for each 100 basis point increase or decrease in interest rates.
Relative to our Yen exposure as of December 31, 2022, we estimate a 10% unfavorable movement in the value of the Yen relative to the U.S. Dollar would increase our foreign currency loss by approximately $30,000. The functional currency of all other subsidiaries in Europe and other subsidiaries in Asia is the U.S. Dollar.
Relative to our Yen exposure as of December 31, 2023, we estimate a 10% unfavorable movement in the value of the Yen relative to the U.S. Dollar would increase our foreign currency loss by approximately $48,000. The functional currency of all other subsidiaries in Europe and other subsidiaries in Asia is the U.S. Dollar.

Other VICR 10-K year-over-year comparisons