UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM

10-Q

☑☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2020~~2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________________

Commission File Number

0-18277

VICOR CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		04-2742817
(State of Incorporation)		(I.R.S. Employer Identification No.)

25 Frontage Road, Andover

, Massachusetts 01810

(Address of Principal Executive Office)

(978)

470-2900

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	VICR	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

☑

☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§ (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act). Yes ☐ No ☑☒

The number of shares outstanding of each of the issuer’s classes of Common Stock as of

October

2622

, ~~2020~~2021 was:

~~was:~~


Common Stock, $.01 par value			~~31,517,044~~32,010,275
Class B Common Stock, $.01 par value			11,758,218

Table of Contents

VICOR CORPORATION

INDEX


	Page
~~Part I — Financial Information:~~
~~Item 1—~~Part I — Financial ~~Statements (Unaudited)~~Information:
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at September 30, ~~2020~~2021 and December 31, ~~2019~~2020		1
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020		2
Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020		3
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2020~~2021 and ~~2019~~2020		4
Condensed Consolidated Statements of Equity for the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020		5
Notes to Condensed Consolidated Financial Statements		7
Item 2—2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations		20 21
Item 3—3 - Quantitative and Qualitative Disclosures About Market Risk		34 32
Item 4—4 - Controls and Procedures		34 32
Part II — Other Information:
Item 1 - Legal Proceedings		34
Item ~~1—Legal Proceedings~~1A - Risk Factors		36 34
Item ~~1A—Risk Factors~~6 - Exhibits		36 34
~~Item 6—Exhibits~~		37
Signature(s)		39 35
EX-31.1 SECTION 302 CERTIFICATION OF CEO
EX-31.2 SECTION 302 CERTIFICATION OF CFO
EX-32.1 SECTION 906 CERTIFICATION OF CEO
EX-32.2 SECTION 906 CERTIFICATION OF CFO

Table of Contents

VICOR CORPORATION

Part I – Financial Information

Item 1 – Financial Statements

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)


	September 30, 2020			December 31, 2019			September 30, 2021			December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	203,605		$	84,668		$	178,663		$	161,742
Accounts receivable, less allowance of $82 in 2020 and $59 in 2019		41,136			38,115
Short-term investments								50,217			50,166
Accounts receivable, net								51,080			40,999
Inventories, net		58,169			49,187			63,409			57,269
Other current assets		6,872			7,096			6,633			6,756

Total current assets		309,782			179,066			350,002			316,932
Long-term deferred tax assets, net		189			205			221			226
Long-term investments, net		2,591			2,510			2,598			2,517
Property, plant and equipment, net		65,780			56,952			104,446			74,843
Other assets		1,777			1,994			1,563			1,721

Total assets	$	380,119		$	240,727		$	458,830		$	396,239

Liabilities and Equity
Current liabilities:
Accounts payable	$	11,911		$	9,005		$	18,346		$	14,121
Accrued compensation and benefits		13,248			10,410			13,994			14,094
Accrued expenses		2,417			2,690			3,589			2,624
Short-term lease liabilities		1,563			1,520			1,625			1,629
Sales allowances		736			741			1,661			597
Income taxes payable		62			57			10			139
Short-term deferred revenue and customer prepayments		8,061			5,507			3,390			7,309

Total current liabilities		37,998			29,930			42,615			40,513
Long-term deferred revenue		813			1,054			493			733
Contingent consideration obligations		265			451			—			227
Long-term income taxes payable		575			567			564			643
Long-term lease liabilities		2,880			2,855			3,504			2,968

Total liabilities		42,531			34,857			47,176			45,084
Commitments and contingencies (Note 11)
Commitments and contingencies (Note 10)								0			0
Equity:
Vicor Corporation stockholders’ equity:
Class B Common Stock: 10 votes per share, $.01 par value, 14,000,000 shares authorized, 11,758,218 shares issued and outstanding in 2020 and 2019		118			118
Common Stock: 1 vote per share, $.01 par value, 62,000,000 shares authorized 43,146,143 shares issued and 31,511,337 shares outstanding in 2020; 40,403,058 shares issued and 28,768,252 shares outstanding in 2019		433			405
Class B Common Stock: 10 votes per share, $.01 par value, 14,000,000 shares authorized, 11,758,218 shares issued and outstanding in 2021 and 2020								118			118
Common Stock: 1 vote per share, $.01 par value, 62,000,000 shares authorized 43,635,881 shares issued and 32,001,075 shares outstanding in 2021; 43,204,671 shares issued and 31,569,865 shares outstanding in 2020								437			433
Additional paid-in capital		326,026			201,251			342,014			328,392
Retained earnings		149,815			143,098			208,753			161,008
Accumulated other comprehensive loss		(203	)		(383	)		(1,040	)		(204	)
Treasury stock at cost: 11,634,806 shares in 2020 and 2019		(138,927	)		(138,927	)
Treasury stock at cost: 11,634,806 shares in 2021 and 2020								(138,927	)		(138,927	)

Total Vicor Corporation stockholders’ equity		337,262			205,562			411,355			350,820
Noncontrolling interest		326			308			299			335

Total equity		337,588			205,870			411,654			351,155

Total liabilities and equity	$	380,119		$	240,727		$	458,830		$	396,239

See accompanying notes.

-1-

Table of Contents

VICOR CORPORATION

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2021			2020			2021			2020
Net revenues	$	84,911		$	78,112		$	269,083		$	212,274
Cost of revenues		42,098			44,765			131,699			121,278

Gross margin		42,813			33,347			137,384			90,996
Operating expenses:
Selling, general and administrative		17,322			15,212			50,865			47,036
Research and development		13,519			12,032			39,818			38,197

Total operating expenses		30,841			27,244			90,683			85,233

Income from operations		11,972			6,103			46,701			5,763
Other income (expense), net:
Total unrealized gains on available-for-sale securities, net		37			36			81			81
Less: portion of gains recognized in other comprehensive income		(36	)		(35	)		(78	)		(78	)

Net credit gains recognized in earnings		1			1			3			3
Other income (expense), net		393			333			996			712

Total other income (expense), net		394			334			999			715

Income before income taxes		12,366			6,437			47,700			6,478
(Benefit) provision for income taxes		(886	)		651			(30	)		(249	)

Consolidated net income		13,252			5,786			47,730			6,727
Less: Net (loss) income attributable to noncontrolling interest		(7	)		1			(15	)		10

Net income attributable to Vicor Corporation	$	13,259		$	5,785		$	47,745		$	6,717

Net income per common share attributable to Vicor Corporation:
Basic	$	0.30		$	0.13		$	1.10		$	0.16
Diluted	$	0.29		$	0.13		$	1.06		$	0.15
Shares used to compute net income per common share attributable to Vicor Corporation:
Basic		43,710			43,164			43,573			41,814
Diluted		45,034			44,743			44,905			43,567

   Three Months Ended Nine Months Ended
   September 30, September 30,
   2020 2019 2020 2019
Net revenues
   $ 78,112 $ 70,772 $ 212,274 $ 199,852
Cost of revenues
   44,765 37,770 121,278 106,647


Gross margin
   33,347 33,002 90,996 93,205
Operating expenses:

Selling, general and administrative
   15,212 15,443 47,036 45,846
Research and development
   12,032 11,507 38,197 34,433


Total operating expenses
   27,244 26,950 85,233 80,279


Income from operations
   6,103 6,052 5,763 12,926
Other income (expense), net:

Total unrealized gains on
available-for-sale
securities, net
   36 11 81 50
Less: portion of gains recognized in other comprehensive income
   (35 ) (10 ) (78 ) (47 )


Net credit gains recognized in earnings
   1 1 3 3
Other income (expense), net
   333 145 712 670


Total other income (expense), net
   334 146 715 673


Income before income taxes
   6,437 6,198 6,478 13,599
Less: Provision (benefit) for income taxes
   651 266 (249 ) 805


Consolidated net income
   5,786 5,932 6,727 12,794

Less: Net income (loss) attributable to noncontrolling interest
   1 (5 ) 10 8


Net income attributable to Vicor Corporation
   $ 5,785 $ 5,937 $ 6,717 $ 12,786


Net income per common share attributable to Vicor Corporation:

Basic
   $ 0.13 $ 0.15 $ 0.16 $ 0.32
Diluted
   $ 0.13 $ 0.14 $ 0.15 $ 0.31
Shares used to compute net income per common share attributable to Vicor Corporation:

Basic
   43,164 40,332 41,814 40,279
Diluted
   44,743 42,194 43,567 41,435

See accompanying notes.

-2-

VICOR CORPORATION

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,


2020


2019

2020


2019

Consolidated net income

$
5,786


$
5,932

$
6,727


$
12,794

Foreign currency translation gains (losses), net of tax (1)


84



(11
)

110



74

Unrealized gains on
available-for-sale
securities, net of tax (1)


35



10

78



47







Other comprehensive income (loss)


119



(1
)

188



121







Consolidated comprehensive income


5,905



5,931

6,915



12,915

Less: Comprehensive income (loss) attributable to noncontrolling interest


7



(6
)

18



13







Comprehensive income attributable to Vicor Corporation

$
5,898


$
5,937

$
6,897


$
12,902


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2021			2020		2021			2020
Consolidated net income	$	13,252		$	5,786	$	47,730		$	6,727
Foreign currency translation (losses) gains, net of tax (1)		(12	)		84		(283	)		110
Unrealized (losses) gains on available-for-sale securities, net of tax (1)		(215	)		35		(574	)		78

Other comprehensive (loss) income		(227	)		119		(857	)		188

Consolidated comprehensive income		13,025			5,905		46,873			6,915
Less: Comprehensive (loss) income attributable to noncontrolling interest		(7	)		7		(36	)		18

Comprehensive income attributable to Vicor Corporation	$	13,032		$	5,898	$	46,909		$	6,897

(1)

The deferred tax assets associated with ~~cumulative~~ foreign currency translation (losses) gains and ~~cumulative~~ unrealized (losses) gains on

available-for-sale

securities are completely offset by a tax valuation allowance as of September 30, ~~2020~~2021 and ~~2019.~~2020. Therefore, there is 0 income tax benefit (provision) recognized for the three and nine months ended September 30, ~~2020~~2021 and ~~2019.~~

2020.

See accompanying notes.

-3-

VICOR CORPORATION

Condensed Consolidated Statements of Cash Flows

(In thousands)

~~(Unaudited~~

(Unaudited)

   Nine Months Ended
   September 30,
   2020 2019
Operating activities:

Consolidated net income
   $ 6,727 $ 12,794
Adjustments to reconcile consolidated net income to net cash provided by operating activities:

Depreciation and amortization
   8,175 7,647
Stock-based compensation expense, net
   4,286 2,292
Provision (benefit) for doubtful accounts
   23 (138 )
Increase (decrease) in long-term income taxes payable
   8 (1 )
(Decrease) increase in long-term deferred revenue
   (241 ) 902
Gain on disposal of equipment
   (9 ) (23 )
Deferred income taxes
   16 24
Credit gain on
available-for-sale
securities
   (3 ) (3 )
Change in current assets and liabilities, net
   (3,742 ) (6,955 )


Net cash provided by operating activities
   15,240 16,539
Investing activities:

Additions to property, plant and equipment
   (16,837 ) (9,122 )
Proceeds from sale of equipment
   9 23
Decrease (increase) in other assets
   135 (37 )


Net cash used for investing activities
   (16,693 ) (9,136 )
Financing activities:

Proceeds from employee stock plans
   10,836 3,423
Proceeds from public offering of Common Stock
   109,681 —
Payment of contingent consideration obligations
   (186 ) (198 )


Net cash provided by financing activities
   120,331 3,225
Effect of foreign exchange rates on cash
   59 44


Net increase in cash and cash equivalents
   118,937 10,672
Cash and cash equivalents at beginning of period
   84,668 70,557


Cash and cash equivalents at end of period
   $ 203,605 $ 81,229


	Nine Months Ended
	September 30,
	2021			2020
Operating activities:
Consolidated net income	$	47,730		$	6,727
Adjustments to reconcile consolidated net income to net cash provided by (used for) operating activities:
Depreciation and amortization		8,564			8,175
Stock-based compensation expense		5,005			4,286
Decrease in long-term deferred revenue		(240	)		(241	)
Decrease in contingent consideration obligations		(74	)		—
Gain on disposal of equipment		—			(9	)
Decrease in other assets		56			135
(Decrease) i ncrease in long-term income taxes payable		(79	)		8
Deferred income taxes		5			16
Credit gain on available-for-sale securities		(3	)		(3	)
Provision for doubtful accounts		—			23
Change in current assets and liabilities, net		(20,737	)		(3,742	)

Net cash provided by operating activities		40,227			15,375
Investing activities:
Purchases of short-term investments		(50,706	)		—
Sales or maturities of short-term investments		50,000			—
Additions to property, plant and equipment		(30,942	)		(16,837	)
Proceeds from sale of equipment		—			9

Net cash used for investing activities		(31,648	)		(16,828	)
Financing activities:
Proceeds from employee stock plans		8,621			10,836
Payment of contingent consideration obligations		(153	)		(186	)
Proceeds from public offering of Common Stock		—			109,681

Net cash provided by financing activities		8,468			120,331
Effect of foreign exchange rates on cash		(126	)		59

Net increase in cash and cash equivalents		16,921			118,937
Cash and cash equivalents at beginning of period		161,742			84,668

Cash and cash equivalents at end of period	$	178,663		$	203,605

See accompanying notes.

-4-

VICOR CORPORATION

Condensed Consolidated Statements of Equity

(In thousands)

(Unaudited)


	Class B Common Stock		Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Vicor Corporation Stockholders’ Equity			Noncontrolling Interest			Total Equity
Three months ended September 30, 2021
Balance on June 30, 2021	$	118	$	436	$	336,278	$	195,494	$	(813	)	$	(138,927	)	$	392,586		$	306		$	392,892
Issuance of Common Stock under employee stock plans				1		3,869										3,870						3,870
Stock-based compensation expense						1,867										1,867						1,867
Components of comprehensive income (loss), net of tax:
Net income								13,259								13,259			(7	)		13,252
Other comprehensive loss										(227	)					(227	)		—			(227	)

Total comprehensive income (loss)																13,032			(7	)		13,025

Balance on September 30, 2021	$	118	$	437	$	342,014	$	208,753	$	(1,040	)	$	(138,927	)	$	411,355		$	299		$	411,654


	Class B Common Stock		Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Vicor Corporation Stockholders’ Equity			Noncontrolling Interest			Total Equity
Nine months ended September 30, 2021
Balance on December 31, 2020	$	118	$	433	$	328,392	$	161,008	$	(204	)	$	(138,927	)	$	350,820		$	335		$	351,155
Issuance of Common Stock under employee stock plans				4		8,617										8,621						8,621
Stock-based compensation expense						5,005										5,005						5,005
Components of comprehensive income (loss), net of tax:
Net income								47,745								47,745			(15	)		47,730
Other comprehensive loss										(836	)					(836	)		(21	)		(857	)

Total comprehensive income (loss)																46,909			(36	)		46,873

Balance on September 30, 2021	$	118	$	437	$	342,014	$	208,753	$	(1,040	)	$	(138,927	)	$	411,355		$	299		$	411,654

Three months ended
September 30, 2020

Class B
Common
Stock


Common
Stock


Additional
Paid-In

Capital

Retained
Earnings


Accumulated
Other
Comprehensive
Income (Loss)

Treasury
Stock

Total

Vicor
Corporation
Stockholders’
Equity

Noncontrolling
Interest


Total
Equity

Balance on June 30, 2020

$
118


$
431


$
320,988

$
144,030


$
(316
)

$
(138,927
)

$
326,324

$
319


$
326,643

Issuance of Common Stock under employee stock plans




2



3,449



3,451



3,451

Additional expenses associated with issuance of Common Stock in public offering (see Note 5)






(51
)



(51
)



(51
)
Stock-based compensation expense






1,640



1,640



1,640

Components of comprehensive income, net of tax:










Net income






5,785



5,785

1



5,786

Other comprehensive income








113

113

6



119











Total comprehensive income








5,898

7



5,905











Balance on September 30, 2020

$
118


$
433


$
326,026

$
149,815


$
(203
)

$
(138,927
)

$
337,262

$
326


$
337,588


	Class B Common Stock		Common Stock		Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Vicor Corporation Stockholders’ Equity			Noncontrolling Interest		Total Equity
Three months ended September 30, 2020
Balance on June 30, 2020	$	118	$	431	$	320,988		$	144,030	$	(316	)	$	(138,927	)	$	326,324		$	319	$	326,643
Issuance of Common Stock under employee stock plans				2		3,449											3,451					3,451
Additional expenses associated with issuance of Common Stock in public offering						(51	)										(51	)				(51	)
Stock-based compensation expense						1,640											1,640					1,640
Components of comprehensive income, net of tax:
Net income									5,785								5,785			1		5,786
Other comprehensive income											113						113			6		119

Total comprehensive income																	5,898			7		5,905

Balance on September 30, 2020	$	118	$	433	$	326,026		$	149,815	$	(203	)	$	(138,927	)	$	337,262		$	326	$	337,588

Nine months ended
September 30, 2020

Class B
Common
Stock


Common
Stock


Additional
Paid-In

Capital


Retained
Earnings


Accumulated
Other
Comprehensive
Income (Loss)

Treasury
Stock

Total

Vicor
Corporation
Stockholders’
Equity


Noncontrolling
Interest


Total
Equity

Balance on December 31, 2019

$
118


$
405


$
201,251


$
143,098


$
(383
)

$
(138,927
)

$
205,562


$
308


$
205,870

Issuance of Common Stock under employee stock plans




10



10,826





10,836





10,836

Issuance of Common Stock in public offering, net (see Note 5)




18



109,663





109,681





109,681

Stock-based compensation expense






4,286





4,286





4,286

Components of comprehensive income, net of tax:














Net income








6,717



6,717



10



6,727

Other comprehensive income










180

180



8



188















Total comprehensive income










6,897



18



6,915















Balance on September 30, 2020

$
118


$
433


$
326,026


$
149,815


$
(203
)

$
(138,927
)

$
337,262


$
326


$
337,588

Three months ended
September 30, 2019

Class B
Common
Stock


Common
Stock


Additional
Paid-In

Capital


Retained
Earnings


Accumulated
Other
Comprehensive
Income (Loss)

Treasury
Stock

Total

Vicor
Corporation
Stockholders’
Equity


Noncontrolling
Interest

Total
Equity

Balance on June 30, 2019

$
118


$
403


$
196,698


$
135,849


$
(278
)

$
(138,927
)

$
193,863


$
453

$
194,316

Issuance of Common Stock under employee stock plans




1



1,715





1,716



1,716

Stock-based compensation expense






753





753



753

Components of comprehensive income, net of tax:












Net income








5,937



5,937



(5
)

5,932

Other comprehensive loss










—



(1
)

(1
)













Total comprehensive income










5,937



(6
)

5,931













Balance on September 30, 2019

$
118


$
404


$
199,166


$
141,786


$
(278
)

$
(138,927
)

$
202,269


$
447

$
202,716

-5-

Table of Contents

VICOR CORPORATION

Condensed Consolidated Statements of Equity

(In thousands)

(Unaudited)


	Class B Common Stock		Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Vicor Corporation Stockholders’ Equity		Noncontrolling Interest		Total Equity
Nine months ended September 30, 2020
Balance on December 31, 2019	$	118	$	405	$	201,251	$	143,098	$	(383	)	$	(138,927	)	$	205,562	$	308	$	205,870
Issuance of Common Stock under employee stock plans				10		10,826										10,836				10,836
Issuances of Common Stock in public offering				18		109,663										109,681				109,681
Stock-based compensation expense						4,286										4,286				4,286
Components of comprehensive income, net of tax:
Net income								6,717								6,717		10		6,727
Other comprehensive income										180						180		8		188

Total comprehensive income																6,897		18		6,915

Balance on September 30, 2020	$	118	$	433	$	326,026	$	149,815	$	(203	)	$	(138,927	)	$	337,262	$	326	$	337,588

Nine months ended
September 30, 2019

Class B
Common
Stock


Common
Stock


Additional
Paid-In

Capital

Retained
Earnings


Accumulated
Other
Comprehensive
Income (Loss)

Treasury
Stock

Total Vicor
Corporation
Stockholders’
Equity

Noncontrolling
Interest


Total
Equity

Balance on December 31, 2018

$
118


$
402


$
193,457

$
129,000


$
(394
)

$
(138,927
)

$
183,656

$
434


$
184,090

Issuance of Common Stock under employee stock plans




2



3,421



3,423



3,423

Stock-based compensation expense






2,292



2,292



2,292

Other






(4
)



(4
)



(4
)
Components of comprehensive income, net of tax:










Net income






12,786



12,786

8



12,794

Other comprehensive income








116

116

5



121











Total comprehensive income








12,902

13



12,915











Balance on September 30, 2019

$
118


$
404


$
199,166

$
141,786


$
(278
)

$
(138,927
)

$
202,269

$
447


$
202,716

See accompanying notes.

-6-

VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

September 30, ~~2020~~

2021

~~(Unaudited)~~(unaudited)

Basis of Presentation

The accompanying

unaudited Condensed Consolidated Financial Statements of Vicor Corporation and its consolidated subsidiaries (collectively, the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, these interim financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, ~~2020~~2021 are not necessarily indicative of the results that may be expected for any other interim period or the year ending December 31, ~~2020.~~2021. The balance sheet at December 31, ~~2019~~2020 presented herein has been derived from the audited financial statements at that date ~~but~~bu

does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form

10-K

for the year ended December 31, ~~2019~~2020 filed by the Company with the SEC on ~~February 28,~~ March 1, 2021 (“2020 ~~(“2019~~

Form

10-K”).

Inventories

are valued at the lower of cost (determined using the

first-in,

first-out

method) or net realizable value. Fixed production overhead is allocated to the inventory cost per unit based on the normal capacity of the production facilities. Abnormal production costs, including fixed cost variances from normal production capacity, if any, are charged to cost of revenues in the period incurred. All shipping, handling and customs (e.g., tariff) costs incurred in connection with the sale of products are included in cost of revenues.

Inventory that is estimated to be excess, obsolete or unmarketable is written down to net realizable value. The Company’s estimation process for assessing net realizable value is based upon ~~forecasted~~management’s estimate of expected future ~~usage~~utility which is derived based on backlog, historical consumption and expected market conditions. If the Company’s estimated demand and/or market expectation were to change or if product sales were to decline, the Company’s estimation process may cause larger inventory reserves to be recorded, resulting in larger charges to cost of revenues.

Inventories were as follows (in thousands):

   September 30, 2020    December 31, 2019
Raw materials
   $ 43,165    $ 35,901
Work-in-process
   8,090    5,184
Finished goods
   6,914    8,102




   $ 58,169    $ 49,187


	September 30, 2021		December 31, 2020

Raw materials	$	46,912	$	42,556
Work-in-process		11,207		7,424
Finished goods		5,290		7,289

	$	63,409	$	57,269

Short-Term and Long-Term Investments

As of September 30, 2021 and December

31,

2020

, the Company held $

50,217

,000 and $

50,166

,000, respectively, of short-term investments, consisting of obligations of the U.S. Treasury, all of which were debt securities with original maturities greater than

three

months but less than

one

year at the time of purchase.

-7-

Table of Contents

VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

September 30, 2021

(unaudited)

As of September 30, 2021 and December 31, ~~2019,~~2020, the Company held one auction rate security with a par value of $3,000,000, purchased through and held in custody by a broker-dealer affiliate of Bank of America, N.A., that has experienced failed auctions (the “Failed Auction Security”) since February 2008. The Failed Auction Security held by the Company is Aaa/AA+ rated by major credit rating agencies, is collateralized by student loans, and is guaranteed by the U.S. Department of Education under the Federal Family Education Loan Program. Management is not aware of any reason to believe the issuer of the Failed Auction Security is presently at risk of default. Through September 30, ~~2020,~~2021, the Company has continued to receive interest payments on the Failed Auction Security in accordance with the terms of its indenture. Management believes the Company ultimately should

~~-7-~~

~~VICOR CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2020~~

~~(Unaudited)~~

be able to liquidate the Failed Auction Security without significant loss primarily due to the overall quality of the issue held and the collateral securing the substantial majority of the underlying obligation. However, current conditions in the auction rate securities market have led management to conclude the recovery period for the Failed Auction Security exceeds 12 months. As a result, the Company continued to classify the Failed Auction Security as ~~long-term~~long

-term as of

September 30, ~~2020.~~2021.

Details of our investments are as follows (in thousands):


	September 30, 2021
	Cash and Cash Equivalents		Short-Term Investments		Long-Term Investments

Measured at fair value:
Available-for-sale debt securities:
Money market funds	$	89,254	$	—	$	—
U.S. Treasury Obligations		—		50,217		—
Failed Auction Security		—		—		2,598

Total		89,254		50,217		2,598
Other measurement basis:
Cash on hand		89,409		—		—

Total	$	178,663	$	50,217	$	2,598


	December 31, 2020
	Cash and Cash Equivalents		Short-Term Investments		Long-Term Investments

Measured at fair value:
Available-for-sale debt securities:
Money market funds	$	69,493	$	—	$	—
U.S. Treasury Obligations		19,998		50,166		—
Failed Auction Security		—		—		2,517

Total		89,491		50,166		2,517
Other measurement basis:
Cash on hand		72,251		—		—

Total	$	161,742	$	50,166	$	2,517

-8-

VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

September 30, 2021

(unaudited)

The following is a summary of the

available-for-sale

~~security~~securities (in thousands):


September 30, 2021	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

U.S. Treasury Obligations	$	50,216	$	1	$	—	$	50,217
Failed Auction Security		3,000		—		402		2,598

September 30, 2020

Cost


Gross
Unrealized
Gains


Gross
Unrealized
Losses


Estimated
Fair
Value

Failed Auction Security

$
3,000


$
—


$
409


$
2,591


December 31, 2019	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
December 31, 2020									Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

U.S. Treasury Obligations									$	70,172	$	—	$	8	$	70,164
Failed Auction Security	$	3,000	$	—	$	490	$	2,510		3,000		—		483		2,517

As of September 30, ~~2020,~~2021,

the Failed Auction Security had ~~been~~be

n in an unrealized loss position for greater than

months.

The amortized cost and estimated fair value of the ~~Failed Auction Security~~

available-for-sale

securities on September 30, ~~2020,~~2021, by type and contractual ~~maturity,~~maturities, are shown below (in thousands):


	Cost		Estimated Fair Value

U.S. Treasury Obligations:
Maturities greater than three months but less than one year	$	50,216	$	50,217

	$	50,216	$	50,217

Cost


Estimated
Fair Value

Due in twenty to forty years

$
3,000


$
2,591


	Cost		Estimated Fair Value

Failed Auction Security:
Due in twenty to forty years	$	3,000	$	2,598

Based on the fair value measurements described in Note 4, the fair value of the Failed Auction Security on September 30, ~~2020,~~2021, with a par value of $3,000,000, was estimated by the Company to be approximately ~~$2,591,000.~~$2,598,000. The gross unrealized loss of ~~$409,000~~$402,000 on the Failed Auction Security consists of two types of estimated loss: an aggregate credit loss of ~~$34,000~~$30,000 and an aggregate temporary impairment of ~~$375,000.~~$372,000. In determining the amount of credit loss, the Company compared the present value of cash flows expected to be collected to the amortized cost basis of the security, considering credit default risk probabilities and changes in credit ratings as significant inputs, among other factors.

~~-8-~~-9-

Table of Contents

VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

September 30, ~~2020~~

2021

~~(Unaudited)~~

(unaudited)

The following table represents a rollforward of the activity related to the credit loss recognized in earnings on the Failed Auction Security for the nine months ended September 30 (in thousands):


							2021			2020
	2020			2019
Balance at the beginning of the period	$	37		$	41		$	33		$	37
Reductions in the amount related to credit gain for which other-than- temporary impairment was not previously recognized		(3	)		(3	)		(3	)		(3	)

Balance at the end of the period	$	34		$	38		$	30		$	34

At this time, the Company has no intent to sell the impaired Failed Auction Security and does not believe it is more likely than not the Company will be required to sell this security. If current market conditions deteriorate further, the Company may be required to record additional unrealized losses. If the credit rating of the security deteriorates, the Company may be required to adjust the carrying value of the investment through impairment charges recorded in the Condensed Consolidated Statements of Operations, and any such impairment adjustments may be material.

Based on the Company’s ability to access cash and cash equivalents, its short-term investments and its expected operating cash flows, management does not anticipate the current lack of liquidity associated with the Failed Auction Security held will affect the Company’s ability to

execute its current operating plan.

Fair Value Measurements

The Company accounts for certain financial assets at fair value, defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions market participants would use in pricing an asset or liability. A three-level hierarchy is used to show the extent and level of judgment used to estimate fair value measurements.

Assets and liabilities measured at fair value on a recurring basis included the following as of September 30, ~~2020~~2021 (in thousands):


											Using
	Using										Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value as of September 30, 2021
	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total Fair Value as of September 30, 2020
Cash equivalents:
Money market funds	$	9,677	$	—	$	—		$	9,677		$	89,254	$	—	$	—	$	89,254
Long-term investments:
Short-term investments:
U.S. Treasury Obligations												50,217		—		—		50,217
Long-term investment:
Failed Auction Security		—		—		2,591			2,591			—		—		2,598		2,598
Liabilities:
Contingent consideration obligations		—		—		(265	)		(265	)

~~-9-~~-10-

Table of Contents

VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

September 30, ~~2020~~

2021

~~(Unaudited)~~

(unaudited)

Assets and liabilities measured at fair value on a recurring basis included the following as of December 31, ~~2019~~2020 (in thousands):

   Using
   Quoted Prices
in Active
Markets
(Level 1)    Significant
Other
Observable
Inputs
(Level 2)    Significant
Unobservable
Inputs
(Level 3)    Total Fair
Value as of
December 31, 2019
Cash equivalents:

Money market funds
   $ 9,630    $ —      $ —      $ 9,630
Long-term investments:

Failed Auction Security
   —      —      2,510    2,510
Liabilities:

Contingent consideration obligations
   —      —      (451 )    (451 )


	Using
	Significant
	Quoted Prices in Active Markets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total Fair Value as of December 31, 2020

Cash equivalents:
Money market funds	$	69,493	$	—	$	—		$	69,493
U.S. Treasury Obligations		19,998		—		—			19,998
Short-term investments:
U.S. Treasury Obligations		50,166		—		—			50,166
Long-term investment:
Failed Auction Security		—		—		2,517			2,517
Liabilities:
Contingent consideration obligations		—		—		(227	)		(227	)

As of September 30, ~~2020,~~2021, there was insufficient observable auction rate security market information available to determine the fair value of the Failed Auction Security using Level 1 or Level 2 inputs. As such, the Company’s investment in the Failed Auction Security was deemed to require valuation using Level 3 inputs. Management, after consulting with advisors, valued the Failed Auction Security using analyses and pricing models similar to those used by market participants (i.e., buyers, sellers, and the broker-dealers responsible for execution of the Dutch auction pricing mechanism by which each issue’s interest rate was set). Management utilized a probability weighted discounted cash flow (“DCF”) model to determine the estimated fair value of this security as of September 30, ~~2020.~~2021. The major assumptions used in preparing the DCF model were similar to those described in

Note 5—5 - Fair Value

Measurements in the Notes to the Consolidated Financial Statements contained in the Company’s ~~2019~~2020 Form

10-K.

Quantitative information about Level 3 fair value measurements as of September 30, ~~2020~~2021 is as follows (dollars in thousands):


	Fair Value		Valuation Technique	Unobservable Input	Weighted Average

Failed Auction Security	$	2,598	Discounted cash flow	Cumulative probability of earning the maximum rate until maturity	0.15%
				Cumulative probability of principal return prior to maturity	94.71%
				Cumulative probability of default	5.14%
				Liquidity risk premium	5.00%
				Recovery rate in default	40.00%

Fair Value


Valuation
Technique


Unobservable
Input

Weighted
Average

Failed Auction Security

$
2,591



Discounted

cash flow


Cumulative probability of earning the maximum rate until maturity


0.11
%






Cumulative probability of principal return prior to maturity


94.75
%






Cumulative probability of default


5.14
%






Liquidity risk premium


5.00
%






Recovery rate in default


40.00
%

~~-10-~~-11-

Table of Contents

VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

September 30, ~~2020~~

2021

~~(Unaudited)~~(unaudited)

The change in the estimated fair value calculated for the investment valued on a recurring basis utilizing Level 3 inputs (i.e., the Failed Auction Security) for the nine months ended September 30, ~~2020~~2021 was as follows (in thousands):


Balance at the beginning of the period	$	2,510	$	2,517
Credit gain on available-for-sale security included in Other income (expense), net		3		3
Gain included in Other comprehensive income		78		78

Balance at the end of the period	$	2,591	$	2,598

The Company has classified its contingent consideration obligations as Level 3 because the fair value for these liabilities was determined using unobservable inputs. The liabilities were based on estimated sales of legacy products over the period of royalty payments at the royalty rate, discounted using the Company’s estimated cost of capital.

The change in the estimated fair value calculated for the liabilities valued on a recurring basis utilizing Level 3 inputs (i.e., the Contingent consideration obligations) for the nine months ended September 30, 2020 was as follows (in thousands):

Balance at the beginning of the period
   $ 451
Payments
   (186 )


Balance at the end of the period
   $ 265

There were

no transfers between Level 1 and Level 2 of the fair value hierarchy during the nine months ended September 30, ~~2020.~~2021.

~~Stockholders’ Equity~~

In June 2020, the Company completed an underwritten public offering of its Common Stock, resulting in the issuance of a total of 1,769,231 shares of registered Common Stock and net proceeds of approximately $109.7 million, after deduction of underwriting discounts and offering expenses. The Company intends to use the net proceeds from the offering to expand its manufacturing facilities and for other general corporate purposes.

~~Revenues~~

Revenue from the sale of Advanced Products represents the sum of third-party sales of the products sold under the Advanced Products line, which were sold under the former Picor and VI Chip operating segments during periods prior to the second quarter of 2019. Revenue from the sale of Brick Products represents the sum of third-party sales of the products sold under the Brick Products line, which were also sold under the former Brick Business Unit operating segment, inclusive of such sales of our Vicor Custom Power and Vicor Japan Company, Ltd. subsidiaries.

~~-11-~~-12-

Table of Contents

VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

September 30, ~~2020~~

2021

~~(Unaudited)~~

(unaudited)

Revenues

The following tables present the Company’s net revenues ~~disaggregated~~disaggr

gated by geography based on the location of the customer, by product line (in thousands):


							Three Months Ended September 30, 2021
	Three Months Ended September 30, 2020						Brick Products		Advanced Products		Total
	Brick Products		Advanced Products		Total
United States	$	16,905	$	4,391	$	21,296	$	19,741	$	12,178	$	31,919
Europe		4,456		2,050		6,506		6,185		1,324		7,509
Asia Pacific		25,878		23,926		49,804		14,936		29,934		44,870
All other		454		52		506		582		31		613

	$	47,693	$	30,419	$	78,112	$	41,444	$	43,467	$	84,911


							Nine Months Ended September 30, 2021
	Nine Months Ended September 30, 2020						Brick Products		Advanced Products		Total
	Brick Products		Advanced Products		Total
United States	$	57,880	$	17,205	$	75,085	$	58,032	$	35,083	$	93,115
Europe		18,451		5,218		23,669		24,605		3,604		28,209
Asia Pacific		60,917		50,076		110,993		66,309		79,926		146,235
All other		2,390		137		2,527		1,309		215		1,524

	$	139,638	$	72,636	$	212,274	$	150,255	$	118,828	$	269,083


							Three Months Ended September 30, 2020
	Three Months Ended September 30, 2019						Brick Products		Advanced Products		Total
	Brick Products		Advanced Products		Total
United States	$	25,265	$	4,290	$	29,555	$	16,905	$	4,391	$	21,296
Europe		5,577		889		6,466		4,456		2,050		6,506
Asia Pacific		14,510		18,875		33,385		25,878		23,926		49,804
All other		1,130		236		1,366		454		52		506

	$	46,482	$	24,290	$	70,772	$	47,693	$	30,419	$	78,112


							Nine Months Ended September 30, 2020
	Nine Months Ended September 30, 2019						Brick Products		Advanced Products		Total
	Brick Products		Advanced Products		Total
United States	$	73,289	$	16,562	$	89,851	$	57,880	$	17,205	$	75,085
Europe		17,960		3,517		21,477		18,451		5,218		23,669
Asia Pacific		46,908		37,618		84,526		60,917		50,076		110,993
All other		2,955		1,043		3,998		2,390		137		2,527

	$	141,112	$	58,740	$	199,852	$	139,638	$	72,636	$	212,274

~~-12-~~-13-

Table of Contents

VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

September 30, ~~2020~~

2021

~~(Unaudited)~~

(unaudited)

The following tables present the Company’s net revenues disaggregated by the category of revenue, by product line (in thousands):


	Three Months Ended September 30, 2021
	Brick Products		Advanced Products		Total

Direct customers, contract manufacturers and non-stocking distributors	$	29,801	$	36,066	$	65,867
Stocking distributors, net of sales allowances		11,405		2,075		13,480
Non-recurring engineering		238		3,846		4,084
Royalties		—		1,462		1,462
Other		—		18		18

	$	41,444	$	43,467	$	84,911


							Nine Months Ended September 30, 2021
	Three Months Ended September 30, 2020						Brick Products		Advanced Products		Total
	Brick Products		Advanced Products		Total
Direct customers, contract manufacturers and non-stocking distributors	$	40,916	$	27,422	$	68,338	$	111,223	$	97,767	$	208,990
Stocking distributors, net of sales allowances		6,661		1,463		8,124		38,586		10,847		49,433
Non-recurring engineering		116		1,499		1,615		446		8,643		9,089
Royalties		—		17		17		—		1,518		1,518
Other		—		18		18		—		53		53

	$	47,693	$	30,419	$	78,112	$	150,255	$	118,828	$	269,083

   Nine Months Ended September 30, 2020
   Brick Products    Advanced Products    Total
Direct customers, contract manufacturers and
non-stocking
distributors
   $ 116,127    $ 62,233    $ 178,360
Stocking distributors, net of sales allowances
   23,097    6,101    29,198
Non-recurring
engineering
   414    4,231    4,645
Royalties
   —      17    17
Other
   —      54    54






   $ 139,638    $ 72,636    $ 212,274


								Three Months Ended September 30, 2020
	Three Months Ended September 30, 2019							Brick Products		Advanced Products		Total
	Brick Products		Advanced Products			Total
Direct customers, contract manufacturers and non-stocking distributors	$	39,705	$	22,574		$	62,279	$	40,916	$	27,422	$	68,338
Stocking distributors, net of sales allowances		6,522		1,734			8,256		6,661		1,463		8,124
Non-recurring engineering		163		(36	)		127		116		1,499		1,615
Royalties		92		—			92		—		17		17
Other		—		18			18		—		18		18

	$	46,482	$	24,290		$	70,772	$	47,693	$	30,419	$	78,112

~~-13-~~-14-

Table of Contents

VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

September 30, ~~2020~~

2021

~~(Unaudited)~~

(unaudited)


							Nine Months Ended September 30, 2020
	Nine Months Ended September 30, 2019						Brick Products		Advanced Products		Total
	Brick Products		Advanced Products		Total
Direct customers, contract manufacturers and non-stocking distributors	$	120,496	$	49,524	$	170,020	$	116,127	$	62,233	$	178,360
Stocking distributors, net of sales allowances		19,750		7,817		27,567		23,097		6,101		29,198
Non-recurring engineering		762		1,319		2,081		414		4,231		4,645
Royalties		104		24		128		—		17		17
Other		—		56		56		—		54		54

	$	141,112	$	58,740	$	199,852	$	139,638	$	72,636	$	212,274

The following table ~~presents~~prese

ts the changes in certain contract assets and (liabilities) (in thousands):


	September 30, 2020			December 31, 2019			Change			September 30, 2021			December 31, 2020			Change
Accounts receivable	$	41,136		$	38,115		$	3,021		$	51,080		$	40,999		$	10,081
Short-term deferred revenue and customer prepayments		(8,061	)		(5,507	)		(2,554	)		(3,390	)		(7,309	)		3,919
Long-term deferred revenue		(813	)		(1,054	)		241			(493	)		(733	)		240
Deferred expenses		1,588			1,897			(309	)		848			1,650			(802	)
Sales allowances		(736	)		(741	)		5			(1,661	)		(597	)		(1,064	)

The increase in accounts receivable was primarily due to an increase in net revenues of approximately ~~$5,919,000~~ $9,224,000

in August through September ~~2020~~2021 compared to November through December ~~2019.~~2020. The decrease in short-term deferred revenue and customer prepayments was primarily due to the recognition of approximately $2,410,000 of the associated revenue during the second quarter of 2021. The increase in sales allowances was primarily due to the increase in the

year-to-date

net revenues in 2021.

Deferred expenses are included in Other current assets in the accompanying Condensed Consolidated Balance Sheets.

The Company records deferred revenue, which represents a contract liability, when cash payments are received or due in advance of performance under a contract with a customer. The Company recognized revenue of approximately $874,000 and $3,955,000 for the three and nine months ended September 30, 2021, respectively, and $388,000 and $1,736,000 for the three and nine months ended September 30, 2020, ~~respectively, and $23,000 and $53,000 for the three and nine months ended September 30, 2019,~~ respectively, that was included in deferred revenue at the beginning of each respective period.

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Table of Contents

VICOR CORPORATION

7.Notes to Condensed Consolidated Financial Statements

September 30, 2021

(unaudited)

Stock-Based Compensation

The Company uses the Black-Scholes option pricing model to calculate the fair value of stock option awards, whether they possess time-based vesting provisions or performance-based vesting provisions, and awards granted under the Vicor Corporation 2017 Employee Stock Purchase Plan (“ESPP”), as of their grant date. Stock-based compensation expense was as follows (in thousands):

~~-14-~~

~~Table of Contents~~

~~VICOR CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2020~~

~~(Unaudited)~~


									Three Months Ended				Nine Months Ended
									September 30,				September 30,

	Three Months Ended September 30,				Nine Months Ended September 30,				2021		2020		2021		2020
	2020		2019		2020		2019
Cost of revenues	$	296	$	86	$	692	$	228	$	259	$	296	$	739	$	692
Selling, general and administrative		846		482		2,313		1,507		1,033		846		2,665		2,313
Research and development		498		185		1,281		557		575		498		1,601		1,281

Total stock-based compensation	$	1,640	$	753	$	4,286	$	2,292	$	1,867	$	1,640	$	5,005	$	4,286

Compensation expense by type of award was as follows (in thousands):


									Three Months Ended				Nine Months Ended
									September 30,				September 30,

	Three Months Ended September 30,				Nine Months Ended September 30,				2021		2020		2021		2020
	2020		2019		2020		2019
Stock options	$	1,420	$	514	$	3,663	$	1,556	$	1,661	$	1,420	$	4,328	$	3,663
ESPP		220		239		623		736		206		220		677		623

Total stock-based compensation	$	1,640	$	753	$	4,286	$	2,292	$	1,867	$	1,640	$	5,005	$	4,286

The increase in stock option compensation expense for the three and nine months ended September 30, ~~2020~~2021 compared to the three and nine months ended September 30, ~~2019,~~2020, was primarily due to an increase in the number of stock options granted and ~~to the acceleration of recognition of~~higher stock-based compensation expense ~~on stock options granted to retirement eligible employees, both~~ associated with June 2021 stock ~~option awards in June 2020.~~opti

n awards.

Rental Income

Income,

net under the Company’s operating lease agreement, for its owned facility leased to a third party in California, was approximately ~~$198,000~~ $

198,000

and ~~$594,000~~ $

594,000

for the three and nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

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VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

September 30, 2021

(unaudited)

Income Taxes

The ~~tax~~(benefit) provision ~~(benefit)~~for income taxes is based on the estimated annual effective tax rate for the year, which includes estimated federal, state and foreign income taxes on the Company’s projected

pre-tax

income.

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~~VICOR CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2020~~

~~(Unaudited)~~

The (benefit) provision ~~(benefit)~~ for income taxes and the effective income tax rates were as follows (dollars in thousands):

   Three Months Ended
September 30, Nine Months Ended
September 30,
   2020 2019 2020 2019
Provision (benefit) for income taxes
   $ 651 $ 266 $ (249 ) $ 805
Effective income tax rate
   10.1 % 4.3 % (3.8 )% 5.9 %


	Three Months Ende d				Nine Months Ended
	September 30,				September 30,

	2021		2020		2021		2020

(Benefit) provision for income taxes	$	(886)	$	651	$	(30)	$	(249)
Effective income tax rate		(7.2)%		10.1%		(0.1)%		(3.8)%

The effective tax rates were lower than the statutory tax ~~rates~~r

tes for the three and nine months ended September 30, 2021 and 2020 ~~and 2019~~primarily due ~~primarily~~ to the ~~utilization of~~Company’s full valuation allowance position against domestic deferred tax ~~credits in 2020~~assets and ~~the combination of utilizing net operating loss carryforwards and~~excess tax ~~credits in 2019. The net tax benefit for the nine months ended September 30, 2020 reflects the relatively high volume of~~benefits related to stock ~~options exercised~~based compensation during ~~the period and the associated impact of excess benefits (and shortfalls) for~~ those ~~stock options exercised, along with the utilization of available tax credits, noted above.~~periods. The (benefit) provision for income taxes infor the three and nine months ended September 30, ~~2020~~2021 and ~~2019 also~~2020 included estimated federal, state and foreign income ~~taxes and estimated state~~ taxes in jurisdictions in which the Company does not have ~~net operating loss carryforwards.~~

sufficient tax attributes to fully offset taxable income.

As of September 30, ~~2020,~~2021, the Company had a valuation allowance of approximately ~~$30,363,000~~$37,856,000 against all net domestic deferred tax assets, for which realization cannot be considered more likely than not at this time. Management assesses the need for the valuation allowance on a quarterly basis. In assessing the need for a valuation allowance, the Company considers all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and past financial performance. While recent positive operating results, as a result of increases in ~~2018, 2019 and 2020~~bookings, caused the Company to be in a cumulative income position as of September 30, ~~2020, its overall profitability has been declining since the third quarter of 2018 and~~2021, the Company ~~recorded an~~faces uncertainties in forecasting its operating ~~loss in the first quarter of 2020, primarily~~results due to overall reduced bookings for both Advanced and Brick products, reflecting U.S.-China trade/tariff dynamics and elements of macro uncertainty. While the Company recorded modest operating income and bookings increased in both the second and third quarters of 2020, the continued ~~uncertain impact of the~~

~~COVID-19~~

~~pandemic~~negative impacts on the Company’s supply chain, certain process issues with the production of Advanced Products and ~~the~~ unpredictability in certain ~~markets are still contributing~~markets. This operating uncertainty also makes it difficult to ~~near-term uncertainty.~~predict the availability and utilization of tax benefits over the next several years. As a result, management has concluded, at this time, 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 iswas still warranted as of September 30, ~~2020.~~2021. The valuation allowance against these deferred tax assets may require adjustment in the future based on changes in the mix of temporary differences, changes in tax laws, and operating performance. If the positive quarterly earnings and increases in bookings continue, and the Company’s concerns about industry uncertainty and world events, ~~the impact of the~~

~~COVID-19~~

~~pandemic~~including continued negative impacts on the Company’s supply chain, and process issues with the production of Advanced Products ~~and order volumes~~ are resolved, ~~or alleviated~~and the amount of tax benefits the Company is able to utilize to the point that the Company believes future ~~profits~~taxable income can be more reliably forecasted, the Company may release all or a portion of the valuation allowance in the near-term. ~~Certain~~However, the valuation allowance against certain state tax credits ~~though,~~ will likely ~~continue~~never be released due to ~~require a valuation allowance.~~uncertainty on the utilization of these credits. 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.

The Company was informed in September 2021 by the Internal Revenue Service of their intention to examine the Company’s 2019 Federal income tax return. There are no other audits or examinations in process in any other jurisdiction.

~~-16-~~-17-

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VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

September 30, ~~2020~~2021

~~(Unaudited)~~

(unaudited)

~~10.~~

Net Income per Share

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share amounts):



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Numerator:
Net income attributable to Vicor Corporation	$	13,259	$	5,785	$	47,745	$	6,717

Denominator:
Denominator for basic net income per share-weighted average shares (1)		43,710		43,164		43,573		41,814
Effect of dilutive securities:
Employee stock options (2)		1,324		1,579		1,332		1,753

Denominator for diluted net income per share – adjusted weighted-average shares and assumed conversions		45,034		44,743		44,905		43,567

Basic net income per share	$	0.30	$	0.13	$	1.10	$	0.16

Diluted net income per share	$	0.29	$	0.13	$	1.06	$	0.15

Three Months Ended
September 30,


Nine Months Ended
September 30,


2020


2019


2020


2019

Numerator:








Net income attributable to Vicor Corporation

$
5,785


$
5,937


$
6,717


$
12,786









Denominator:








Denominator for basic net income per share-weighted average shares (1)


43,164



40,332



41,814



40,279

Effect of dilutive securities:








Employee stock options (2)


1,579



1,862



1,753



1,156









Denominator for diluted net income per share – adjusted weighted-average shares and assumed conversions


44,743



42,194



43,567



41,435









Basic net income per share

$
0.13


$
0.15


$
0.16


$
0.32









Diluted net income per share

$
0.13


$
0.14


$
0.15


$
0.31

(1)	Denominator represents weighted average number of shares of Common Stock and Class B Common Stock outstanding.

(2)

Options to purchase 76,114 and 134,822 shares of Common Stock for the three and nine months ended September 30, 2021, respectively, and options to purchase 265,725 and 130,027 shares of Common Stock for the three and nine months ended September 30, 2020, ~~respectively, and 171,499 and 138,251 shares of Common Stock for the three and nine months ended September 30, 2019,~~ respectively, were not included in the calculations of net income per share as the effect would have been antidilutive.

~~11.~~

10.

Commitments and Contingencies

At September 30, ~~2020,~~2021, the Company had approximately ~~$12,595,000~~ $22,046,000

of capital expenditure commitments, principally for manufacturing ~~equipment.~~equipment, and approximately

$6,607,000 of

capital expenditure items which had been received and included in Property, plant and equipment in the accompanying Condensed Consolidated Balance Sheets, but not yet paid for. In addition to these commitments, the Company ~~had,~~has, in the aggregate, approximately ~~$63,800,000~~

$20,000,000

of remaining budgeted capital expenditures expected to be incurred through the first half of 2022 associated with the construction of a

90,000

sq. ft. addition to the Company’s existing manufacturing facility and the installation of new production equipment.

The Company is the defendant in a patent infringement lawsuit originally filed on January 28, 2011 by SynQor, Inc. (“SynQor”) in the U.S. District Court for the Eastern District of Texas (the “Texas Action”). The complaint, as amended, alleges that the Company’s products, including but not limited to, unregulated bus converters used in intermediate bus architecture power supply systems, infringe SynQor’s U.S. patent numbers 7,072,190, 7,272,021, 7,564,702, and 8,023,290 (“the ‘190 patent”, “the ‘021 patent”, ~~“the~~

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VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

September 30, 2021

(unaudited)

“the ‘702 patent”, and “the ‘290 patent”, respectively). SynQor’s complaint sought an injunction against further infringement and an award of unspecified compensatory and enhanced damages, interest, costs and attorney fees. The Company has denied that its products infringe any of the SynQor patents, and has asserted that the SynQor patents are invalid and/or unenforceable. The Company has also asserted counterclaims seeking damages from SynQor for deceptive trade practices and tortious interference with prospective economic advantage arising from SynQor’s attempted enforcement of its patents against the Company.

~~-17-~~

~~Table of Contents~~

~~VICOR CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2020~~

~~(Unaudited)~~

~~On May 23, 2016, after extensive discovery, the~~The Texas Action ~~was~~is currently stayed by the ~~court~~District Court pending completion of certain inter partes reexamination (“IPRx”) proceedings initiated by the Company at the United States Patent and Trademark Office (“USPTO”) (including any appeals ~~from such proceedings~~ to ~~the Federal Circuit (as defined below)) concerning the SynQor patents, which are described below. That stay remains in force.~~

In 2011, in response to the filing of the Texas Action, the Company’s IPRx proceedings at the USPTO challenged the validity of all claims that were asserted against the Company by SynQor. The current status of these proceedings is as follows. Regarding the ‘190 patent IPRx, the United States Court of Appeals for the Federal Circuit (the “Federal Circuit”) ~~issued~~). In these IPRx proceedings, the Company challenged the validity of the SynQor patent claims asserted in the Texas Action. On March 17, 2021, SynQor filed a motion to lift the stay in

he Texas Action. The Company has opposed that motion, which remains pending.

The current status of the IPRx proceedings is as follows:

‘190 patent: Certain claims of the ‘190 patent were found unpatentable by the Federal Circuit in a decision issued on March 13, ~~2015, determining that certain~~2015. The court remanded the remaining claims ~~were invalid and remanding~~to the ~~matter to~~USPTO for further consideration. On February 20, 2019, the Patent Trial and Appeal Board (“PTAB”) of the USPTO ~~for further proceedings. On February 20, 2019, the PTAB~~ issued a decision finding that all of the remaining challenged claims were unpatentable. SynQor ~~has~~ appealed that ~~decision to the Federal Circuit, and the appeal remains pending.~~decision. On ~~August 30, 2017,~~February 22, 2021, the Federal Circuit issued rulings with regard to the IPRx proceedings for the ’021, ‘702 and ‘290 patents. With respect to the ‘021 patent, the Federal Circuit affirmed the PTAB’s determination that all of the challenged claims of the ‘021 patent were invalid. The Federal Circuit remanded the case to the PTAB for further consideration of the patentability of certain claims that had been added by amendment during the reexamination. On February 20, 2019, the PTAB issued a decision ~~affirming the examiner’s rejections of all challenged claims. SynQor has filed an appeal of~~in that decision in the Federal Circuit. That appeal has been stayed pending resolution of the pending appeal regarding the ‘190 patent IPRx. With respect to the ‘702 patent, the Federal Circuit affirmed the PTAB’s determination that all of the challenged claims of the ‘702 patent were patentable. With respect to the ‘290 patent,appeal. In a

2-1

ruling, the Federal Circuit vacated and remanded the PTAB’s decision, ~~upholding~~finding that the ~~patentability of~~reasoning the PTAB had relied on in reaching its decision was precluded by certain prior PTAB rulings regarding the ‘290 ~~patent claims,~~and ‘702 patents and remanded the case to the PTAB for further ~~consideration.~~proceedings. On ~~February 20, 2019, the PTAB issued a decision reversing its prior affirmance of the examiner’s~~

~~non-adoption~~

of rejections with respect to the ‘290 patent, and entering rejections of all of the claims of the ‘290 patent. On May 20, 2019, as permitted by USPTO rules, SynQor requested the USPTO to reopen prosecution of this proceeding to address the new rejections made by the PTAB. On September 28, 2020, the examiner issued a decision reaffirming the PTAB’s rejection of all of the claims of the ‘290 patent.

~~On October 31, 2017,~~April 7, 2021, the Company filed a ~~request with~~petition for panel rehearing and rehearing en banc of the ~~USPTO~~Federal Circuit’s February 22, 2021 decision. The Federal Circuit denied that petition on June 7, 2021. Accordingly, that matter has been remanded to the PTAB for ~~ex parte reexamination (“EPRx”)~~further proceedings.

‘021 patent: On August 30, 2017, the Federal Circuit issued a final decision finding all of the asserted claims of the ‘021 patent unpatentable.

‘702 patent: On August 30, 2017, the Federal Circuit issued a final decision finding all of the asserted claims of the ‘702 patent ~~based on different prior art references than had been at issue in~~to be patentable.

‘290 patent: On June 16, 2021, the ~~previous IPRx of the ‘702 patent. On September 12, 2018,~~PTAB issued a ~~patent examiner found that~~decision finding all of the ~~asserted claims were invalid. SynQor has appealed that ruling to the PTAB, where the appeal remains pending. On August 6, 2018, the Company filed a request with the USPTO for EPRx of the asserted~~ claims of the ~~‘190~~‘290 patent based on different prior art references than had been at issue in the previous IPRx of the ‘190 patent. On August 9, 2019, the USPTO issued a final rejection of all of the asserted claims of the ‘190 patent.unpatentable. SynQor has ~~appealed~~filed an appeal of that ~~ruling~~decision to the ~~PTAB,~~Federal Circuit, where ~~the appeal~~it remains pending.

On January 23, 2018, the

20-year

terms of the ‘190 patent, the ‘021 patent, the ‘702 patent and the ‘290 patent expired. As a consequence of these expirations, the Company cannot be liable under any of the SynQor patents for allegedly infringing activities occurring after ~~the patents’ respective expiration dates.~~that date. In addition, any amended claims that may issue as a result of any of the still-pending ~~reexamination~~IPRx proceedings will have no effective term and cannot be the basis for any liability by the Company. As noted above, the IPRx’s relating to the asserted claims of the ‘190 and ‘290 patents remain pending or on appeal. In addition, SynQor attempted to add new claims during the IPRx of the ‘021 patent. Those claims were rejected by the PTAB. SynQor subsequently filed an appeal with the Federal Circuit seeking to vacate that rejection as moot, in view of the expiry of the term of the ‘021 patent, and that appeal remains pending.

The Company continues to believe none of its products, including its unregulated bus converters, infringe any valid claim of the asserted SynQor patents, either alone or when used in an intermediate bus architecture implementation. The Company believes SynQor’s claims lack merit and, therefore, it continues to vigorously defend itself against SynQor’s patent infringement allegations. The Company does not believe a loss is probable for this matter. If a loss were to be incurred, however, the Company cannot estimate the amount of possible loss or range of possible loss at this time.

-19-

Table of Contents

VICOR CORPORATION

Notes to Condensed Consolidated Financial Statements

September 30, 2021

(unaudited)

In addition to the SynQor matter, the Company is involved in certain other litigation and claims incidental to the conduct of its business. While the outcome of lawsuits and claims against the Company cannot be predicted with certainty, management does not expect any current litigation or claims will have a material adverse impact on the Company’s financial position or results of operations.

~~-18-~~

~~Table of Contents~~

~~VICOR CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2020~~

~~(Unaudited)~~

~~12.~~11.

Impact of Recently Issued Accounting Standards

In December 2019, the Financial Accounting Standards Board (“FASB”) issued guidance designed to simplify the accounting for income taxes by eliminating certain exceptions to the general principles in Topic 740, Income Taxes, and also improve consistent application of and simplify U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This new guidance ~~will be~~was effective for the Company for its fiscal year beginning after December 15, 2020, with early adoption permitted. The Company ~~has not yet determined the impact this new guidance will have on its consolidated financial statements and disclosures.~~

In August 2018, the FASB issued guidance which modifies the disclosure requirements on fair value measurements under Topic 820, Fair Value Measurements, including the consideration of costs and benefits. The new guidance is effective for all entities for annual and interim periods in fiscal years beginning after December 15, 2019, with early adoption permitted. It is required to be applied on a retrospective approach with certain elements being adopted prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. The Company adopted the new guidance as of January 1, ~~2020. The adoption did not have a material impact on the Company’s consolidated financial statements and disclosures.~~

~~In June 2016, the FASB issued guidance which requires measurement and recognition of expected credit losses on certain types of financial instruments. It also modifies the impairment model for~~

~~available-for-sale~~

debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. It is required to be applied on a modified-retrospective approach with certain elements being adopted prospectively. The Company adopted the new guidance as of January 1, 2020.2021. The adoption did not have a material impact on the Company’s consolidated financial statements and disclosures.

Other new pronouncements issued but not effective until after September 30, ~~2020~~2021 are not expected to have a material impact on the Company’s consolidated financial statements.

~~-19-~~-20-

Table of Contents

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

September 30, ~~2020~~2021

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Note Regarding Forward-Looking Statements

The Company’s consolidated operating results are affected by a wide variety of factors that could materially and adversely affect revenues and profitability, including the risk factors described in the Company’s Annual Report on Form

10-K

for the year ended December 31, ~~2019 and the risk factor described in this Quarterly Report on Form~~

~~10-Q.~~

2020. As a result of these and other factors, the Company may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect its business, consolidated financial condition, and operating results, and the share price of its Common Stock. This document and other documents filed by the Company with the Securities and Exchange Commission (“SEC”) include forward-looking statements regarding future events and the Company’s future results that are subject to the safe harbor afforded under the Private Securities Litigation Reform Act of 1995 and other safe harbors afforded under the Securities Act of 1933 and the Securities Exchange Act of 1934. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Forward-looking statements are based on our current beliefs, expectations, estimates, forecasts, and projections for the future performance of the Company and are subject to risks and uncertainties. Forward-looking statements are identified by the use of words denoting uncertain, future events, such as “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “future,” “goal,” “if,” “intend,” “may,” “plan,” “potential,” “project,” “prospective,” “seek,” “should,” “target,” “will,” or “would,” as well as similar words and phrases, including the negatives of these terms, or other variations thereof. Forward-looking statements also include, but are not limited to, statements regarding: our expectations that the Company has adequate resources to respond to financial and operational risks associated with the novel coronavirus

“COVID-19,”

and our and our customers’ ability to effectively conduct business during the pandemic; our ability to address certain supply chain risks; our ongoing development of power conversion architectures, switching topologies, materials, packaging, and products; the ongoing transition of our business strategically, organizationally, and operationally from serving a large number of relatively

low-volume

customers across diversified markets and geographies to serving a small number of relatively ~~large-volume~~large volume customers; our intent to enter new market segments; the levels of customer orders overall and, in particular, from large customers and the delivery lead times associated therewith; anticipated new and existing customer wins; the financial and operational impact of customer changes to shipping schedules; the derivation of a portion of our sales in each quarter from orders booked in the same quarter; our intent to expand the percentage of revenue associated with licensing our intellectual property to third parties; our plans to invest in expanded manufacturing capacity, including the expansion of our Andover facility and the introduction of new manufacturing processes, and the timing, location, and funding thereof; our belief that cash generated from operations ~~and the total of~~together with our available cash and cash equivalents and short-term investments will be sufficient to fund ~~operations~~planned operational needs, capital equipment purchases, and ~~capital investments~~planned construction, for the foreseeable future; our outlook regarding tariffs and the impact thereof on our business; our belief that we have limited exposure to currency risks; our intentions regarding the declaration and payment of cash dividends; our intentions regarding protecting our rights under our patents; and our expectation that no current litigation or claims will have a material adverse impact on our financial position or results of operations. These forward-looking statements are based upon our current expectations and estimates associated with prospective events and circumstances that may or may not be within our control and as to which there can be no assurance. Actual results could differ materially from those implied by forward-looking statements as a result of various factors, including but not limited to those described above, as well as those described in the Company’s Annual Report on Form

10-K

for the year ended December 31, ~~2019~~2020 under Part I, Item 1 — “Business,” under Part I, Item 1A — “Risk Factors,” under Part I, Item 3 — “Legal Proceedings,” and under Part II, Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and those described in this Quarterly Report on Form

10-Q,

particularly under Part I, Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations” and Part II, Item 1A – “Risk Factors.~~Operations.” The discussion of our business contained herein, including the identification and assessment of factors that may influence actual results, may not be exhaustive. Therefore, the information presented should be read together with other documents we file with the SEC from time to time, including our Annual Reports on Form

10-K,

our Quarterly Reports on Form

10-Q

and our Current Reports on Form

8-K,

which may supplement, modify, supersede, or update the factors discussed in this Quarterly Report on Form

10-Q.

Any forward-looking statement made in this Quarterly Report on Form

10-Q

is based on information currently available to us and speaks only as of the date on which it is made. We do not undertake any obligation to update any forward-looking statements as a result of future events or developments, except as required by law.

~~-20-~~-21-

Table of Contents

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

September 30, ~~2020~~2021

Overview

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

Based on design, performance, and form factor considerations, as well as the range of evolving applications for which our products are appropriate, we categorize our product portfolios as either “Advanced Products” or “Brick Products.” The Advanced Products category consists of our more recently introduced products, which are largely used to implement our proprietary Factorized Power Architecture

™

(“FPA”), an innovative power distribution architecture enabling flexible, rapid power system design using individual components optimized to perform a specific conversion function.

The Brick Products category largely consists of our broad and well-established families of integrated power converters, incorporating multiple conversion stages, used in conventional power systems architectures.

Given the growth profiles of the markets we serve with our Advanced Products line and our Brick Products line, our strategy involves a transition in organizational focus, emphasizing investment in our Advanced Products line and targeting high growth market segments with a

low-mix,

high-volume operational model, while maintaining a profitable business in the mature market segments we serve with our Brick Products line with a

high-mix,

low-volume

operational model.

The applications in which our Advanced Products and Brick Products are used are typically in the higher-performance, higher-power segments of the market segments we serve. With our Advanced Products, we generally serve large Original Equipment Manufacturers (“OEMs”), Original Design Manufacturers (“ODMs”), and their contract manufacturers, with sales currently concentrated in the data center and hyperscaler segments of enterprise computing, in which our products are used for voltage distribution on server motherboards, in server racks, and across datacenter infrastructure. We have established a leadership position in the emerging market segment for powering high-performance processors used for acceleration of applications associated with artificial intelligence ~~with~~(“AI”). Our customers ~~including~~in the AI market segment include the leading innovators in processor and accelerator design, as well as early adopters in cloud computing and high performance computing. We also 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 Brick Products, we generally serve a fragmented base of large and small 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 over time a greater concentration of sales among relatively fewer customers.

~~In June 2020, we completed an underwritten public offering of 1,538,462 shares of our Common Stock, at a price to the public of $65.00 per share. Pursuant to our agreement with the underwriter~~

~~of this offering, the underwriter had a~~

~~30-day~~

option to purchase from us up to an additional 230,769 shares of our Common Stock. Including the shares associated with the exercise of this option, we issued a total of 1,769,321 shares of Common Stock in the offering and received net proceeds of approximately $109.7 million, after deduction of underwriting discounts and offering expenses. We intend to use the net proceeds from the offering for the expansion of our manufacturing facilities and other general corporate purposes, including the expected growth of net working capital.

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

~~-21-~~

~~Table of Contents~~

~~VICOR CORPORATION~~

~~Management’s Discussion and Analysis of~~

~~Financial Condition and Results of Operation~~

~~September 30, 2020~~

sources. Customer forecasts, particularly those of OEM, ODM, and contract manufacturing customers to which we supply Advanced Products in high volumes, are subject to scheduling changes on short notice, contributing to operating inefficiencies and excess costs. In addition, external factors such as supply chain uncertainties, which are often associated with the cyclicality of the electronics industry, regional macroeconomic and trade-related circumstances, and

force majeure

events (most recently evidenced by the

COVID-19

pandemic), have caused our operating results to vary meaningfully. Our quarterly gross margin as a percentage of net revenues may vary, depending on production volumes, average selling prices, average unit costs, the mix of products sold during that quarter, and the level of importation of raw materials subject to tariffs. Our quarterly operating margin as a percentage of net revenues also may vary with changes in revenue and product level profitability, but our operating costs are largely associated with compensation and related employee costs, which are not subject to sudden or significant changes.

~~Please refer to the Company’s Annual Report on Form~~

~~10-K~~

~~for the year ended December 31, 2019 for a summary of the Company’s critical accounting policies and estimates.~~

~~Impact of~~

~~COVID-19~~

~~Pandemic~~

~~On January 30, 2020, the World Health Organization designated the~~

~~COVID-19~~

outbreak a “Public Health Emergency of International Concern” (i.e., a health emergency requiring coordinated action by the governments of effected countries). On January 31, 2020, the U.S. Department of Health and Human Services declared a public health emergency for the entire United States, thereby facilitating a nationwide public health response. On March 11, 2020,

~~COVID-19~~

~~was declared a pandemic by the World Health Organization, an indication of its global severity. Governments worldwide have responded with measures intended to contain the further spread of~~

~~COVID-19,~~

~~including mandatory closures of businesses, schools, and organizations.~~

~~On March 23, 2020, the Commonwealth of Massachusetts ordered~~

~~non-essential~~

businesses closed and prohibited gatherings of more than 10 people, extending the Commonwealth’s emergency declaration made on March 10, 2020. Our headquarters and primary manufacturing facility are located in Massachusetts. However, the Company is designated as essential by the U.S. Department of Homeland Security, given our role in supporting industrial sectors considered “critical infrastructure.” As such, we have continued to operate at, or close to, full manufacturing capacity, although there can be no assurance we will be able to continue to operate at such levels of manufacturing capacity.

Widespread uncertainty associated with the pandemic has contributed to reduced business activity worldwide. As described further below, we experienced production constraints during the first, second, and third quarters of 2020 that resulted in inefficiencies and higher costs, which, in the aggregate, had a detrimental influence on our financial results for the periods.

There can be no assurance that our financial performance will not continue to be materially negatively impacted in future quarters as a result of the pandemic, given the continued uncertainty and forecasts of higher infection rates as we enter the Fall season. Since early March 2020, we have taken actions intended to protect the health and safety of our employees, customers, business partners, and suppliers. Following guidance from the U.S. Centers for Disease Control and Prevention, the U.S. Occupational Health and Safety Administration, state and local health authorities, and existing internal crisis management policies, we developed and implemented comprehensive health and safety measures at all of our locations, including: establishing a central response team; distributing information and carrying out education initiatives; implementing social distancing requirements, including the installation of transparent panels to physically separate individuals when in close proximity; distributing breathing masks, disposable gloves, disinfectant wipes, and thermometers to employees; implementing temperature checks at the entrances to our manufacturing facility; extensive and frequent disinfecting of our workspaces; modifying our meal services to minimize physical contact; enabling work-from-home arrangements for those employees who do not need to be physically on premises to perform their work effectively; and suspending travel. We expect to maintain these measures until we determine the 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 further government mandates or requirements.

-22-

Table of Contents

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

September 30, ~~2020~~2021

~~Rates~~Ongoing / Potential Impacts of ~~absenteeism associated with employee self-quarantine due to exposure to~~the

COVID-19

~~were steady at a satisfactory level during~~Pandemic on the ~~third quarter of 2020, after a decline during the second quarter of 2020.~~ Company

As of the date of this report, wethe number of employees diagnosed with

COVID-19

and the corresponding absenteeism due to

COVID-19

are negligible. 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. We continue to operate with three shifts in our factory, and, with very few exceptions, our engineering, sales, and administrative personnel are working from the Company’s offices. ~~The productivity of our factory may be reduced if absenteeism increases or if an employee is diagnosed with~~

~~COVID-19,~~

~~which likely would require further restrictive health and safety measures, including factory closure, to be implemented.~~

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. 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, could result in higher costs and inbound and outbound delays. We have taken steps to address certain supply chain risks, and we believe our actions have mitigated those risks to date; however, there are no assurances that those steps will continue to mitigate risks for the remainder of 2021 and beyond.

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, ~~(supplemented by the approximately $109.7 million of net proceeds from the public offering of shares of our Common Stock during the second quarter of 2020),~~ flexible operational model, existing raw material inventories, and increased use of ~~second-sources~~second sources for critical manufacturing inputs together support management’s belief the Company will be able to effectively conduct business until the pandemic passes.

We are monitoring the rapidly changing circumstances, and may take additional actions to address

COVID-19

risks as they ~~evolve.~~evolve and/or increase again. 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.

~~Please refer to Item 1A, “Risk Factors” below for updates to our risk factors associated with the~~

~~COVID-19~~

~~pandemic.~~

Summary of Third Quarter ~~2020~~2021 Financial Performance Compared to Second Quarter 2021 Financial Performance

The following summarizes our financial performance for the third quarter of ~~2020,~~2021, compared to the second quarter of ~~2020:~~2021:

Net revenues ~~increased 10.4%~~decreased 11.0% to ~~$78,112,000~~$84,911,000 for the third quarter of ~~2020,~~2021, from ~~$70,761,000~~$95,376,000 for the second quarter of ~~2020, reflecting higher bookings recorded during the first~~2021. Net revenues for Brick Products decreased 23.7%, primarily due to market conditions in Europe and ~~second quarters of 2020. Total bookings for the third quarter increased 3.4% from~~Asia Pacific. Advanced Products revenue rose 6.0% sequentially compared to the second quarter of ~~2020.~~2021. This growth, though, continued to be constrained by limited component availability due to global semiconductor supply allocation issues experienced during the quarter, along with certain internal processing and testing constraints.

For the third quarter of 2020, the percentage of total net revenues generated by sales of Advanced Products rose to 38.9% from 34.4% for the prior quarter, while the percentage of total net revenues generated by sales of Brick Products declined to 61.1% from 65.6% for the prior quarter.

Export sales represented approximately ~~72.7%~~62.4% of total net revenues ~~for~~in the third quarter of ~~2020,~~2021 as compared to ~~71.4%~~64.3% in the second quarter of ~~2020. This sequential increase reflects higher shipments to Asian customers, notably in China and Taiwan.~~2021.

Gross margin ~~increased~~decreased to ~~$33,347,000~~$42,813,000 for the third quarter of ~~2020~~2021 from ~~$30,318,000~~$49,871,000 for the second quarter of ~~2020, while~~2021, and gross margin, as a percentage of net revenues, decreased to ~~42.7%~~50.4% for the third quarter of ~~2020~~2021 from ~~42.8%~~52.3% for the second quarter of ~~2020. Despite sequentially higher unit shipments~~2021. Both the decrease in gross margin dollars and ~~production volumes~~the decreased gross margin percentage were primarily due to the decrease in net revenues and lower absorption of overhead expenses.

Backlog, which represents the total value of orders for products for which shipment is scheduled within the next 12 months, was approximately $295,695,000 at the end of the third quarter of 2020, higher sales and increased overhead absorption were offset by decreased product-level profitability, which was the consequence of unfavorable product mix and production inefficiencies caused by the ongoing impact of the pandemic on our supply chain partners. Other negative influences on gross margin2021, as ~~a percentage of net revenues included a sustained level of import tariffs, which totaled $1,900,000 for the third quarter of 2020,~~ compared to ~~$2,000,000 in~~$210,565,000 at the end of the second quarter of ~~2020.~~2021.

-23-

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

September 30, ~~2020~~2021

Operating expenses for the third quarter of ~~2020 declined 3.7%~~2021 increased $979,000, or 3.3%, to ~~$27,244,000~~$30,841,000 from ~~$28,285,000~~$29,862,000 for the second quarter of ~~2020. While sales,~~2021. Selling, general, and administrative expenses increased approximately $733,000, primarily due to increases in compensation, outside services, legal fees and ~~research~~sales commissions. Research and development expenses ~~all declined sequentially, the third quarter was~~increased approximately $246,000, primarily ~~influenced~~due to an increase in compensation expense, partially offset by ~~lower stock option expense, lower commission expense,~~a decrease in project and ~~lower spending on prototyping and related engineering activities.~~pre-production materials.

We reported net income for the third quarter of ~~2020~~2021 of ~~$5,785,000,~~$13,259,000, or ~~$0.13~~$0.29 per diluted share, compared to net income of ~~$2,667,000,~~$19,394,000 or ~~$0.06~~$0.43 per diluted share, for the second quarter of ~~2020.~~2021.

For the third quarter of ~~2020,~~2021, depreciation and amortization totaled ~~$2,736,000,~~$2,946,000 and capital additions totaled ~~$8,113,000,~~$15,160,000 as compared to ~~$2,728,000 of~~ depreciation and amortization of $2,812,000 and ~~$5,725,000~~$6,518,000 of capital additions ~~respectively,~~ for the second quarter of ~~2020.~~2021.

~~Cash and cash equivalents~~Inventories increased by approximately ~~$6,901,000,~~$6,280,000, or ~~3.5%~~11.0%, to ~~$203,605,000~~$63,409,000 at September 30, ~~2020,~~2021, compared to ~~$196,704,000~~$57,129,000 at June 30, ~~2020.~~2021, primarily with raw materials, due to the revenue in the third quarter of 2021 falling below expectations, primarily caused by component and capacity issues which contributed to production delays.

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

~~As noted, net~~Net revenues for the third quarter of ~~2020 increased 10.4%~~2021 were $84,911,000, an increase of $6,799,000, or 8.7%, as compared to ~~net revenues~~$78,112,000 for the ~~second~~third quarter of 2020. Net revenues, ofby product line, for the three months ended September 30, 2021 and 2020 were as follows (dollars in thousands):


					Increase (decrease)
	2021		2020		$			%
Brick Products	$	41,444	$	47,693	$	(6,249	)		(13.1	)%
Advanced Products		43,467		30,419		13,048			42.9	%

Total	$	84,911	$	78,112	$	6,799			8.7	%

The increase in net revenues for Advanced Products was primarily the result of growth in the data center and high performance computing business, primarily in the United States and Asia Pacific markets. The decrease in net revenues for Brick Products was primarily due to unfavorable market conditions in the Asia Pacific markets, offset by increases from customers in the United States and Europe.

Gross margin for the third quarter of ~~2020~~2021 increased ~~25.0%~~$9,466,000, or 28.4%, ~~as compared~~ to ~~the second quarter of 2020, primarily due to increased demand~~$42,813,000, from ~~Asian subcontract manufacturers, reflected by higher bookings from these customers in the first and second quarters of 2020. Bookings for Advanced Products~~$33,347,000 for the third quarter of 2020 increased 9.9% sequentially. Net revenues of Brick Products for the third quarter of 2020 increased 2.7%, as sustained demand from Chinese customers offset continued uncertainty in other geographies, as reflected by booking patterns in the first and second quarters. Bookings for Brick Products for the third quarter of 2020 declined 0.5% sequentially, with increased orders for our legacy converter lines offset by lower orders for our custom systems. After two quarters of declining orders in North America for legacy converters, such bookings rose for the third quarter.

2020. Gross margin, as a percentage of ~~revenue declined slightly sequentially, from 42.8%~~net revenues, increased to 50.4% for the ~~second~~third quarter of ~~2020,~~2021, compared to 42.7% for the third quarter of 2020. While supply chain delays were not as pronounced during the third quarter of 2020, certain providers of raw materials and/or services continued to experience delays due to the effect of the pandemic on their own operations. As was the caseThe increase in ~~the first~~gross margin dollars and ~~second quarters of 2020, our~~ gross margin percentage ~~for the third quarter of 2020~~ was ~~influenced by an unfavorable product mix and high tariff charges, which totaled $1,900,000 for the third quarter of 2020, compared to $2,000,000 in the second quarter of 2020.~~

We recorded operating income of $6,103,000 in the third quarter of 2020, due to the higher net revenues and lower operating expenses, compared to the second quarter of 2020. The sequential decline was associated with lower stock option compensation expense, reflecting the approximately $1,200,000 charge taken in the second quarter of 2020 primarily due to the ~~acceleration~~increase in net revenues and an improved mix of ~~compensation expense on stock options granted in June 2020 to retirement eligible employees, lower commission expenses, given the increased volume of direct sales, and reduced prototyping and~~

~~pre-production~~

~~costs.~~

~~While we recorded a net income tax provision of $651,000 for the third quarter of 2020, primarily due to state and foreign tax expense, the net tax benefit on a~~

~~year-to~~

~~date basis reflects the impact of the relatively high volume of stock options exercised during the first nine months of this year and the utilization of available tax credits.~~

~~Net income attributable to Vicor Corporation (i.e., after net income or loss attributable to a~~

~~non-controlling~~

interest) for the third quarter of 2020 was $5,785,000, representing net income per diluted share of $0.13, an increase from net income of $2,667,000, or $0.06 per diluted share, for the second quarter of 2020.

Bookings for the third quarter of 2020 totaled $90.5 million, an increase of 3.4%, compared to the second quarter of 2020. New orders for Advanced Products increased 9.9% sequentially, largely driven by higher orders from Asian contract manufacturers manufacturing on behalf of our OEM customers. Bookings from Chinese customers declined, as OEM customers continue to reduce their exposure to China by relocating production to contract manufacturers located in other countries, notably Taiwan. New orders for

higher-margin products shipped.

-24-

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

September 30, ~~2020~~2021

~~Brick Products essentially~~Selling, general, and administrative expenses were unchanged for the third quarter compared to the second quarter, with improved order volumes from customers and distributors in the U.S. and China offsetting lower sequential volumes from European customers.

At September 30, 2020, order backlog (which represents the total value of orders received for products for which shipment is scheduled within the next 12 months) totaled $140.0 million, an increase of 9.8% over the prior quarter, representing a historic high for the Company.

~~Three Months Ended September 30, 2020, Compared to Three Months Ended September 30, 2019~~

~~The following summarizes our financial performance~~$17,322,000 for the third quarter of ~~2020, compared to the third quarter~~2021, an increase of ~~2019:~~

~~Net revenues increased 10.4% to $78,112,000~~$2,110,000, or 13.9%, from $15,212,000 for the third quarter of ~~2020, from $70,772,000 for the third quarter of 2019.~~

~~Export sales represented approximately 72.7% of total net revenues in the third quarter of 2020 as compared to 58.2% in the third quarter of 2019. This increase reflects improved demand across Asia.~~

~~Gross margin increased to $33,347,000 for the third quarter of 2020 from $33,002,000 for the third quarter of 2019, but gross margin,~~2020. Selling, general, and administrative expenses as a percentage of net revenues ~~decreased~~increased to ~~42.7%~~20.4% for the third quarter of ~~2020~~2021 from ~~46.6%~~19.5% for the third quarter of 2019. Despite higher unit sales and production volumes for the third quarter of 2020, higher sales and increased overhead absorption were offset by decreased product-level profitability, which was the consequence of unfavorable product mix and production inefficiencies and cost variances caused by the ongoing impact2020. The components of the ~~pandemic on our supply chain partners.~~

~~Operating~~$2,110,000 increase in selling, general and administrative expenses for the third quarter of ~~2020 increased $294,000, or 1.1%, to $27,244,000~~2021 from $26,950,000 for the third quarter of 2019, due to an increase in research and development expenses of $525,000, partially offset by a decrease in selling, general, and administrative expenses of $231,000.

~~We reported net income for~~ the third quarter of 2020 ~~of $5,785,000, or $0.13 per diluted share, compared to net income of $5,937,000, or $0.14 per diluted share, for the third quarter of 2019.~~

were as follows (dollars in thousands):


	Increase
Compensation	$	725	7.0	% (1)
Legal fees		568	178.7	% (2)
Commissions		205	29.5	% (3)
Travel expense		169	94.7	% (4)
Outside services		152	29.9	% (5)
Advertising		148	22.9	% (6)
Employment recruiting		131	179.1	% (7)
Other, net		12	0.5	%

	$	2,110	13.9	%

For the third quarter of September 30, 2020, depreciation and amortization totaled $2,736,000, and capital additions totaled $8,113,000, as compared to $2,649,000 of depreciation and amortization and $3,258,000 of capital additions, respectively, for the third quarter of September 30, 2019.

Cash and cash equivalents increased by approximately $122,376,000, or 150.7%, to $203,605,000 compared to $81,229,000 at September 30, 2019 primarily due to the completion of a public offering of our Common Stock in June 2020, resulting in net proceeds of approximately $109,700,000.

Backlog was approximately $140,029,000 at the end of the third quarter of 2020, as compared to $90,088,000 at the end of the third quarter of 2019, and $104,164,000 at the end of the fourth quarter of 2019.

(1)	Increase primarily attributable to annual compensation adjustments in May 2021 and higher stock-based compensation expense associated with stock options awarded in June 2021.

(2)	Increase primarily attributable to an increase in activity related to the SynQor litigation (see Note 10 to the Condensed Consolidated Financial Statements) and for certain corporate legal matters.

(3)	Increase primarily attributable to an increase in net revenues subject to commissions.

(4)	Increase primarily attributable to a resumption of travel by the Company’s sales and marketing personnel, though still at levels significantly lower than prior to the COVID 19 pandemic.

(5)	Increase primarily attributable to an increase in the use of outside service providers at our Andover, MA facility.

(6)	Increase primarily attributable to increases in sales support expenses, direct mailings, and advertising in trade publications.

(7)	Increase primarily attributable to an increase in employee recruitment activities at Andover.

-25-

Table of Contents

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

September 30, ~~2020~~

As noted, net revenues for the third quarter of 2020 were $78,112,000, an increase of $7,340,000, or 10.4%, as compared to $70,772,000 for the third quarter of 2019. Net revenues, by product line, for the three months ended September 30, 2020 and 2019 were as follows (dollars in thousands):

         Increase
   2020    2019    $    %
Brick Products
   $ 47,693    $ 46,482    $ 1,211    2.6 %
Advanced Products
   30,419    24,290    6,129    25.2 %







Total
   $ 78,112    $ 70,772    $ 7,340    10.4 %

Net revenues of Brick Products for the third quarter of 2020 increased 2.6%, as compared to the third quarter of 2019, primarily due to the recovery of Asian customers, notably in China, from the macroeconomic uncertainty of 2019 and the impact of the pandemic on shipments and bookings during the first quarter of 2020. Net revenues of Advanced Products for the third quarter of 2020 increased 25.2%, as compared to the third quarter of 2019, primarily due to increased demand from Asian subcontract manufacturers, reflected in the bookings patterns of the first and second quarters of 2020.

Total bookings for the third quarter of 2020 increased 49.5 % from the third quarter of 2019, driven by an increase of Advanced Products bookings of 108.0% for the third quarter of 2020 compared to the third quarter of 2019.

Gross margin for the third quarter of 2020 increased $345,000, or 1.0%, to $33,347,000, from $33,002,000 for the third quarter of 2019. Gross margin, as a percentage of net revenues, decreased to 42.7% for the third quarter of 2020, compared to 46.6% for the third quarter of 2019. The increase in gross margin dollars was primarily due to the increase in net revenue. The decrease in gross margin, as a percentage of net revenues, was primarily due to an unfavorable change in product mix shipped (i.e., a higher percentage of lower margin products were produced and shipped during the quarter), a negative influence from production inefficiencies and cost variances, certain supply chain constraints associated with the

~~COVID-19~~

~~pandemic, and higher tariff charges.~~

~~-26-~~

~~Table of Contents~~

~~VICOR CORPORATION~~

~~Management’s Discussion and Analysis of~~

~~Financial Condition and Results of Operation~~

~~September 30, 2020~~

Selling, general, and administrative expenses were $15,212,000 for the third quarter of 2020, a decrease of $231,000, or 1.5%, from $15,443,000 for the third quarter of 2019. Selling, general, and administrative expenses as a percentage of net revenues decreased to 19.5% for the third quarter of 2020 from 21.8% for the third quarter of 2019, primarily due to the overall increase in net revenues. The components of the $231,000 decrease in selling, general and administrative expenses for the third quarter of 2020 from the third quarter of 2019 were as follows (dollars in thousands):

   Increase
(decrease)
Travel expense
   $ (690 )    (79.4 )%(1)
Commissions
   (191 )    (21.6 )%(2)
Outside services
   (173 )    (25.4 )%(3)
Compensation
   812    8.6 %(4)
Other, net
   11    0.4 %



   $ (231 )    (1.5 )%

~~(1)~~

~~Decrease primarily attributable to reduced travel by our sales and marketing personnel, due to travel restrictions caused by the~~

~~COVID-19~~

~~pandemic.~~

~~(2)~~

~~Decrease primarily attributable to the decline in net revenues subject to commissions.~~

~~(3)~~

~~Decrease primarily attributable to a decrease in the use of outside service providers at our Andover, MA facility.~~

~~(4)~~

~~Increase primarily attributable to higher stock-based compensation expense associated with June 2020 stock option awards.~~

~~-27-~~

~~Table of Contents~~

~~VICOR CORPORATION~~

~~Management’s Discussion and Analysis of~~

~~Financial Condition and Results of Operation~~

~~September 30, 2020~~2021

Research and development expenses were $13,519,000 for the third quarter of 2021, an increase of $1,487,000, or 12.4%, compared to $12,032,000 for the third quarter of ~~2020, an increase of $525,000, or 4.6%, compared to $11,507,000 for the third quarter of 2019, primarily due to an increase in compensation expenses.~~2020. As a percentage of net revenues, research and development expenses ~~decreased~~increased to 15.9% for the third quarter of 2021 from 15.4% for the third quarter of ~~2020 from 16.3% for the third quarter of 2019, primarily due to the overall increase in net revenues.~~2020. The components of the ~~$525,000~~$1,487,000 increase in research and development expenses were as follows (dollars in thousands):


	Increase (decrease)					Increase (decrease)
Compensation	$	730		8.8	%(1)	$	710		7.9	% (1)
Facilities allocations		99		16.7	%
Project and pre-production materials							583		42.3	% (2)
Deferred costs		(144	)	(71.6	)%(2)		149		43.2	% (3)
Project and pre-production materials		(144	)	(9.5	)%(3)
Employment recruiting							99		464.7	%
Outside services							42		57.1	%
Overhead absorption							(209	)	(69.7)	% (4)
Other, net		(16	)	(1.3	)%		113		5.1	%

	$	525		4.6	%	$	1,487		12.4	%

(1)	Increase primarily attributable to annual compensation adjustments in May 2021 and higher stock-based compensation expense associated with stock options awarded in June ~~2020.~~2021.

(2)	~~Decrease~~ Increase primarily attributable to ~~an increase~~increased prototype development costs for Advanced Products.

(3)	Increase primarily attributable to a decrease in ~~the capitalization of~~deferred costs capitalized for certain non-recurring engineering projects for which the related revenues ~~have~~had been deferred.

~~(3)~~(4)

Decrease primarily attributable to ~~lower prototype~~an increase in research and development ~~costs for Advanced Products.~~(“R&D”) personnel incurring time on production activities, compared to R&D activities.

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


	2020			2019			Increase (decrease)			2021			2020			Increase (decrease)
Interest income										$	267		$	7		$	260
Rental income	$	198		$	198		$	—			198			198			—
Foreign currency gains (losses), net		140			(142	)		282
Interest income		7			74			(67	)
Gain on disposals of equipment		3			1			2
Foreign currency (losses) gains, net											(110	)		140			(250	)
Gains on disposals of equipment											39			3			36
Other, net		(14	)		15			(29	)		—			(14	)		14

	$	334		$	146		$	188		$	394		$	334		$	60

Interest income increased due to an increase in interest bearing investments in the third quarter of 2021 compared to the third quarter of 2020, due to the investment of the net proceeds of approximately $109.7 million from our underwritten public offering of our Common Stock completed in June 2020. Our exposure to market risk fluctuations in foreign currency exchange rates relates to the operations of Vicor Japan Company, Ltd. (“VJCL”), for which the functional currency is the Japanese Yen, and all other subsidiaries in Europe and Asia, for which the functional currency is the U.S. Dollar. These ~~other~~ subsidiaries in Europe and Asia ~~have~~ experienced more ~~favorable~~unfavorable foreign currency exchange rate fluctuations in ~~2020 compared to 2019. Interest income decreased due to a decrease in interest rates.~~

~~Income before income taxes was $6,437,000 for~~ the third quarter of ~~2020, as~~2021 compared to ~~$6,198,000 for~~ the third quarter of ~~2019.~~2020.

~~-28-~~

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Table of Contents

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

September 30, ~~2020~~2021

Income before income taxes was $12,366,000 for the third quarter of 2021, as compared to $6,437,000 for the third quarter of 2020.

The (benefit) provision for income taxes and the effective income tax rates for the three months ended September 30, ~~2020~~2021 and ~~2019~~2020 were as follows (dollars in thousands):


	2020			2019			2021			2020
Provision for income taxes	$	651		$	266
(Benefit) provision for income taxes							$	(886	)	$	651
Effective income tax rate		10.1	%		4.3	%		(7.2	)%		10.1	%

The effective tax rates were lower than the statutory tax rates for the three months ended September 30, 2021 and 2020 ~~and 2019~~primarily due ~~primarily~~ to the ~~utilization of~~Company’s full valuation allowance position against domestic deferred tax ~~credits in 2020~~assets and ~~the combination of utilizing net operating loss carryforwards and~~excess tax ~~credits in 2019.~~benefits related to stock based compensation during those periods. The ~~provisions~~(benefit) provision for income taxes infor the three months ended September 30, ~~2020~~2021 and ~~2019 also~~2020 included estimated federal, state and foreign income ~~taxes and estimated state~~ taxes in jurisdictions in which the Company does not have ~~net operating loss carryforwards.~~sufficient tax attributes to fully offset taxable income.

See Note 98 to the Condensed Consolidated Financial Statements for disclosure regarding our current assessment of the valuation allowance against all domestic deferred tax assets, and the possible release (i.e., reduction) of the allowance in the future.

We reported net income for the third quarter of ~~2020~~2021 of ~~$5,785,000,~~$13,259,000, or ~~$0.13~~$0.29 per diluted share, compared to ~~net income of $5,937,000,~~$5,785,000, or ~~$0.14~~$0.13 per diluted share, for the third quarter of ~~2019.~~2020.

Nine Months Ended September 30, ~~2020,~~2021 Compared to Nine Months Ended September 30, ~~2019~~2020

Net revenues for the nine

months ended September 30, ~~2020~~2021 were ~~$212,274,000,~~$269,083,000, an increase of ~~$12,422,000,~~$56,809,000, or ~~6.2%~~26.8%, from ~~$199,852,000~~$212,274,000 for the nine months ended September 30, ~~2019.~~2020. Net revenues, by product line, for the nine months ended September 30, ~~2020~~2021 and the nine months ended September 30, ~~2019~~2020 were as follows (dollars in thousands):


					Increase (decrease)										Increase
	2020		2019		$			%			2021		2020		$		%
Brick Products	$	139,638	$	141,112	$	(1,474	)		(1.0	)%	$	150,255	$	139,638	$	10,617		7.6	%
Advanced Products		72,636		58,740		13,896			23.7	%		118,828		72,636		46,192		63.6	%

Total	$	212,274	$	199,852	$	12,422			6.2	%	$	269,083	$	212,274	$	56,809		26.8	%

The increase in net revenues for Advanced Products was primarily the ~~nine months ended September 30, 2020 from~~result of growth in the ~~nine months ended September 30, 2019~~data center and high performance computing business, in the United States and Asia Pacific markets. The increase in net revenues for Brick Products was primarily due to ~~an overall 32.4% increase~~increases from customers in ~~bookings~~the United States and Europe, offset by a decrease in net revenues from customers in the European markets. The increases in net revenues for both Brick Products and Advanced Products were also the result of increases in new orders for Advanced Products and Brick Products for the nine months ended September 30, ~~2020,~~2021 compared to the nine months ended September 30, ~~2019, principally due~~2020. The increase in bookings largely reflected our customers’ response to anthe 20% to 30% increase ~~of 111.9%~~ in ~~new orders~~lead-times for our Brick Products and Advanced Products, respectively, plus growth in our data center business, for Advanced Products.

Gross margin for the nine months ended September 30, 2020 decreased $2,209,000, or 2.4%, to $90,996,000 from $93,205,000 for the nine months ended September 30, 2019. Gross margin, as a percentage of net revenues, decreased to 42.9% for the nine month period ended September 30, 2020, as compared to 46.6% for the nine month period ended September 30, 2019. Despite higher net revenues for the nine-month period ended September 30, 2020, gross margin dollars and gross margin as a percentage of net revenues both decreased as compared to the nine-month period ended September 30, 2019, primarily due to an unfavorable change in product mix (i.e., a higher percentage of lower margin products were produced and shipped during the nine-month period ended September 30, 2020), a negative influence from production inefficiencies and cost variances, certain supply chain constraints associated with the

~~COVID-19~~

~~pandemic, and higher tariff charges.~~

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Table of Contents

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

September 30, ~~2020~~2021

Gross margin for the nine months ended September 30, 2021 increased $46,388,000, or 51.0%, to $137,384,000 from $90,996,000 for the nine months ended September 30, 2020. Gross margin, as a percentage of net revenues, increased to 51.1% for the nine month period ended September 30, 2021, as compared to 42.9% for the nine month period ended September 30, 2020. The increase in gross margin dollars and gross margin percentage was primarily due to the increase in net revenues, an improved mix of higher-margin products shipped, process yield improvements and lower tariff charges.

Selling, general and administrative expenses were $50,865,000 for the nine months ended September 30, 2021, an increase of $3,829,000, or 8.1%, compared to $47,036,000 for the nine months ended September 30, ~~2020, an increase of $1,190,000, or 2.6%, compared to $45,846,000 for the nine months ended September 30, 2019.~~2020. Selling, general and administrative expenses as a percentage of net revenues decreased to 18.9% for the nine months ended September 30, 2021 from 22.2% for the nine months ended September 30, 2020, ~~from 22.9% for the nine months ended September 30, 2019,~~ primarily due to the overall increase in net revenues. The components of the ~~$1,190,000~~$3,829,000 increase in selling, general and administrative expenses for the nine months ended September 30, ~~2020~~2021 compared to the nine months ended September 30, ~~2019~~2020 were as follows (dollars in thousands):


	Increase (decrease)					Increase (decrease)
Compensation	$	2,349		8.2	%(1)	$	1,920		6.2	%	(1	)
Legal fees		468		46.7	%(2)		756		51.5	%	(2	)
Advertising expense							399		20.0	%	(3	)
Outside services							224		15.1	%	(4	)
Employment recruiting							210		112.9	%	(5	)
Depreciation and amortization		241		11.7	%(3)		155		6.7	%	(6	)
Bad debt expense		161		116.7	%
Outside services		(146	)	(8.9	)%
Commissions							129		5.2	%
Facilities allocations		(186	)	(14.5	)%		127		11.6	%
Advertising expense		(252	)	(11.2	)%(4)
Travel expense		(1,397	)	(61.8	)%(5)
Other, net		(48	)	(0.7	)%		(91	)	(1.9	)%

	$	1,190		2.6	%	$	3,829		8.1	%

(1)	Increase primarily attributable to ~~merit-based~~annual compensation ~~increases for~~ ~~non-exempt~~ ~~hourly employees, increase~~adjustments in ~~headcount~~May 2021 and higher stock-based compensation expense associated with stock options awarded in June ~~2020.~~2021.

(2)

Increase primarily attributable to ~~higher use of outside legal services associated with~~an increase in activity related to the ~~December 2019 ransomware incident, which carried into~~SynQor litigation (see Note 10 to the ~~first quarter of 2020,~~Condensed Consolidated Financial Statements) and ~~other~~for certain corporate legal matters.

(3)	Increase primarily attributable to increases in sales support expenses, direct mailings, and advertising in trade publications.

(4)	Increase primarily attributable to an increase in the use of outside service providers at our Andover, MA facility.

(5)	Increase primarily attributable to an increase in employee recruitment activities at Andover.

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

~~(4)~~

~~Decrease primarily attributed to lower sales support expenses, direct mailings, and advertising in trade publications.~~

~~(5)~~

~~Decrease primarily attributable to reduced travel by our sales and marketing personnel, due to travel restrictions caused by the~~

~~COVID-19~~

~~pandemic.~~

~~-30-~~

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Table of Contents

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

September 30, ~~2020~~2021

Research and development expenses were $39,818,000 for the nine months ended September 30, 2021, an increase of $1,621,000, or 4.2%, from $38,197,000 for the nine months ended September 30, ~~2020, an increase of $3,764,000, or 10.9%, from $34,433,000 for the nine months ended September 30, 2019, primarily due to increased compensation expenses and expenses associated with project and~~

~~pre-production~~

~~materials.~~2020. As a percentage of net revenues, research and development expenses ~~increased~~decreased to 14.8% for the nine month period ended September 30, 2021 from 18.0% for the nine month period ended September 30, 2020, ~~from 17.2% for~~primarily due to the ~~nine month period ended September 30, 2019.~~overall increase in net revenues. The components of the ~~$3,764,000~~$1,621,000 increase in research and development expenses for the nine months ended September 30, ~~2020~~2021 compared to the nine months ended September 30, ~~2019~~2020 were as follows (dollars in thousands):


	Increase (decrease)				Increase (decrease)
Compensation	$	2,088	8.4	%(1)	$	1,678		6.2	% (1)
Project and pre-production materials		1,122	23.7	%(2)		229		3.9	% (2)
Facilities allocations						206		11.1	% (3)
Deferred costs		516	44.4	%(3)		166		25.7	% (4)
Supplies						92		9.4	%
Employment recruiting						85		169.6	%
Freight						74		72.6	%
Computer expense						73		15.0	%
Overhead absorption						(1,039	)	(133.8	)% (5)
Other, net		38	0.6	%		57		1.7	%

	$	3,764	10.9	%	$	1,621		4.2	%

(1)	Increase primarily attributable to ~~merit-based~~annual compensation ~~increases for~~ ~~non-exempt~~ ~~hourly employees, increase~~adjustments in ~~headcount,~~May 2021 and higher stock-based compensation expense associated with stock options awarded in June ~~2020.~~2021.

(2)	Increase primarily attributable to ~~higher spending~~increased prototype development costs for ~~new product development of~~ Advanced Products.

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

(4)	Increase primarily attributable to a decrease in ~~the capitalization of~~deferred costs capitalized for certain non-recurring engineering projects for which the related revenues ~~have~~had been deferred.

(5)	Decrease primarily attributable to an increase in R&D personnel incurring time on production activities, compared to R&D activities.

The significant components of ‘‘Other income (expense), net’’ for the nine months ended September 30, ~~2020~~2021 and the nine months ended September 30, ~~2019~~2020 and the changes from period to period were as follows (in thousands):


	2020		2019			Increase (decrease)			2021			2020		Increase (decrease)
Interest income									$	736		$	77	$	659
Rental income	$	594	$	594		$	—			594			594		—
Interest income		77		236			(159	)
Foreign currency gains (losses), net		23		(202	)		225
Gain on disposals of equipment		9		23			(14	)
Foreign currency (losses) gains, net										(285	)		23		(308	)
(Losses) gains on disposals of equipment										(67	)		9		(76	)
Other, net		12		22			(10	)		21			12		9

	$	715	$	673		$	42		$	999		$	715	$	284

-29-

Table of Contents

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

September 30, 2021

Interest income increased due to an increase in interest bearing investments in 2021 compared to 2020, due to the investment of the net proceeds of approximately $109.7 million from our underwritten public offering of our Common Stock completed in June 2020. Our exposure to market risk fluctuations in foreign currency exchange rates relates to the operations of VJCL, for which the functional currency is the Japanese Yen, and all other subsidiaries in Europe and Asia, for which the functional currency is the U.S. Dollar. These ~~other~~ subsidiaries in Europe and Asia ~~have~~ experienced more ~~favorable~~unfavorable foreign currency exchange rate fluctuations in ~~2020~~2021 compared to ~~2019. Interest income decreased due to a decrease in interest rates.~~2020.

Income before income taxes was $47,700,000 for the nine months ended September 30, 2021, as compared to $6,478,000 for the nine months ended September 30, ~~2020, as compared to $13,599,000 for the nine months ended September 30, 2019.~~

~~-31-~~

~~Table of Contents~~

~~VICOR CORPORATION~~

~~Management’s Discussion and Analysis of~~

~~Financial Condition and Results of Operation~~

~~September 30, 2020~~

2020.

The ~~(benefit) provision~~benefit for income taxes and the effective income tax rates for the nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 were as follows (dollars in thousands):


	2020			2019			2021			2020
(Benefit) provision for income taxes	$	(249	)	$	805
Benefit for income taxes							$	(30	)	$	(249	)
Effective income tax rate		(3.8	)%		5.9	%		(0.1	)%		(3.8	)%

The effective tax rates were lower than the statutory tax rates for the nine months ended September 30, 2021 and 2020 ~~and 2019~~primarily due ~~primarily~~ to the ~~utilization of~~Company’s full valuation allowance position against domestic deferred tax ~~credits in 2020~~assets and ~~the combination of utilizing net operating loss carryforwards and~~excess tax ~~credits in 2019.~~benefits related to stock based compensation during those periods. The ~~net tax~~ benefit for income taxes for the nine months ended September 30, ~~2020 reflects the relatively high volume of stock options exercised during the period~~2021 and the associated impact of excess benefits (and shortfalls) for those stock options exercised, and the utilization of available tax credits, noted above. The (benefit) provision for income taxes in the nine months ended September 30, 2020 ~~and 2019 also~~ included estimated federal, state and foreign income ~~taxes and estimated state~~ taxes in jurisdictions in which the Company does not have ~~net operating loss carryforwards.~~sufficient tax attributes to fully offset taxable income.

We reported net income for the nine months ended September 30, ~~2020~~2021 of ~~$6,717,000,~~$47,745,000, or ~~$0.15~~$1.06 per diluted share, as compared to ~~$12,786,000,~~$6,717,000, or ~~$0.31~~$0.15 per diluted share, for the nine months ended September 30, ~~2019.~~

~~Liquidity and Capital Resources~~

As of September 30, 2020, we had $203,605,000 in cash and cash equivalents. The ratio of total current assets to total current liabilities was 8.2:1 as of September 30, 2020 and 6.0:1 as of December 31, 2019. Working capital, defined as total current assets less total current liabilities, increased $122,648,000 to $271,784,000 as of September 30, 2020 from $149,136,000 as of December 31, 2019.

~~The changes in working capital from December 31, 2019 to September 30, 2020 were as follows (in thousands):~~2020.

   Increase
(decrease)
Cash and cash equivalents
   $ 118,937
Accounts receivable
   3,021
Inventories, net
   8,982
Other current assets
   (224 )
Accounts payable
   (2,906 )
Accrued compensation and benefits
   (2,838 )
Accrued expenses
   273
Short-term lease liabilities
   (43 )
Sales allowances
   5
Income taxes payable
   (5 )
Short-term deferred revenue
   (2,554 )


   $ 122,648

~~-32-~~

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Table of Contents

VICOR CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operation

September 30, ~~2020~~2021

Liquidity and Capital Resources

As of September 30, 2021, we had $178,663,000 in cash and cash equivalents and $50,217,000 of highly liquid short-term investments. The ratio of total current assets to total current liabilities was 8.2:1 as of September 30, 2021 and 7.8:1 as of December 31, 2020. Working capital, defined as total current assets less total current liabilities, increased $30,968,000 to $307,387,000 as of September 30, 2021 from $276,419,000 as of December 31, 2020.

The changes in working capital from December 31, 2020 to September 30, 2021 were as follows (in thousands):


	Increase (decrease)
Cash and cash equivalents	$	16,921
Short-term investments		51
Accounts receivable		10,081
Inventories, net		6,140
Other current assets		(123)
Accounts payable		(4,225)
Accrued compensation and benefits		100
Accrued expenses		(965)
Sales allowances		(1,064)
Short-term lease liabilities		4
Income taxes payable		129
Short-term deferred revenue		3,919

	$	30,968

The primary sources of cash for the nine months ended September 30, ~~2020 were: (i) approximately $109.7 million of cash received in the form of net proceeds~~2021 were $50,000,000 from the ~~completion~~sale or maturities of ~~the public offering of our Common Stock in June 2020, (ii) $15.2 million~~short-term investments, $40,227,000 of cash generated ~~through operating activities,~~from operations, and ~~(iii) $10.8 million~~$8,621,000 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 ~~use~~uses of cash during the nine months ended September 30, ~~2020 was $16.8 million~~2021 were $50,706,000 for the purchases of short-term investments and $30,942,000 for the purchase of property and equipment.

In November 2000, our Board of Directors authorized the repurchase of up to $30,000,000 of our Common Stock (the “November 2000 Plan”). The November 2000 Plan authorizes us to make such repurchases from time to time in the open market or through privately negotiated transactions. The timing and amounts of Common Stock repurchases are at the discretion of management based on its view of economic and financial market conditions. We did not repurchase shares of Common Stock under the November 2000 Plan during the nine months ended September 30, ~~2020.~~2021. As of September 30, ~~2020,~~2021, we had approximately $8,541,000 remaining available for repurchases of our Common Stock under the November 2000 Plan.

As of September 30, ~~2020,~~2021, we had approximately ~~$12,595,000~~$22,046,000 of capital expenditure commitments, principally for manufacturing equipment, which we intend to fund with existing ~~cash.~~cash, and approximately $6,607,000 of capital expenditure items which had been received and included in Property, plant and equipment in the accompanying Condensed Consolidated Balance Sheets, but not yet paid for. In addition to these commitments, ~~the Company had,~~we have, in aggregate, approximately ~~$63,800,000~~$20,000,000 of remaining budgeted capital expenditures expected to be incurred through the first half of 2022 associated with the construction of a 90,000 sq. ft. addition to the Company’s existing manufacturing facility and the installation of new production equipment. Our primary needs for liquidity are for making continuing investments in manufacturing equipment and for funding the construction of the additional manufacturing space adjoining our existing Andover manufacturing facility, noted above, including architectural and construction costs. 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, capital equipment purchases, and the planned construction, for the foreseeable future.

~~-33-~~

-31-

Vicor Corporation

September 30, ~~2020~~2021

Item 3 — Quantitative and Qualitative Disclosures About Market Risk

We are exposed to a variety of market risks, including changes in interest rates affecting the return on our cash and cash equivalents, our short-term investments and fluctuations in foreign currency exchange rates. As our cash and cash equivalents and short-term investments consist principally of cash accounts, ~~and~~ money market securities, and U.S. Treasury securities, which are short-term in nature, we believe our exposure to market risk on interest rate fluctuations for these investments is not significant. As of September 30, ~~2020,~~2021, our long-term investment portfolio, recorded on our Condensed Consolidated Balance Sheet as “Long-term investments, net”, consisted of a single auction rate security with a par value of $3,000,000, purchased through and held in custody by a broker-dealer affiliate of Bank of America, N.A., that has experienced failed auctions (the “Failed Auction Security”) since February 2008. While the Failed Auction Security is Aaa/AA+ rated by major credit rating agencies, collateralized by student loans and guaranteed by the U.S. Department of Education under the Federal Family Education Loan Program, continued failure to sell at its periodic auction dates (i.e., reset dates) could negatively impact the carrying value of the investment, in turn leading to impairment charges in future periods. Periodic changes in the fair value of the Failed Auction Security attributable to credit loss (i.e., risk of the issuer’s default) are recorded through earnings as a component of “Other income (expense), net”, with the remainder of any periodic change in fair value not related to credit loss (i.e., temporary

“mark-to-market”

carrying value adjustments) recorded in “Accumulated other comprehensive ~~(loss) income”~~loss”, a component of Stockholders’ Equity. Should we conclude a decline in the fair value of the Failed Auction Security is other than temporary, such losses would be recorded through earnings as a component of “Other income (expense), net”. We do not believe there was an “other-than-temporary” decline in value in this security as of September 30, ~~2020.~~2021.

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

Item 4 — Controls and Procedures

(a) Disclosure regarding controls and procedures.

As required by

Rule 13a-15

under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), management, with the participation of our Chief Executive Officer (“CEO”) (who is our principal executive officer) and Chief Financial Officer (“CFO”) (who is our principal financial officer), conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the last fiscal quarter (i.e., September 30, ~~2020)~~2021). The term “disclosure controls and procedures,” as defined in

Rules 13a-15(e)

and

15d-15(e)

under the Exchange Act, means controls and other procedures of a company that are designed to ensure information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure information required to be disclosed by a company in the reports it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, ~~2020,~~2021, our CEO and CFO concluded, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

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

~~-34-~~

~~Vicor Corporation~~

~~September 30, 2020~~

likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any control’s effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

-32-

Table of Contents

Vicor Corporation

September 30, 2021

(b) Changes in internal control over financial reporting.

There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, ~~2020,~~2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~-35-~~

-33-

Vicor Corporation

Part II – Other Information

September 30, ~~2020~~2021

Item 1 — Legal Proceedings

See Note ~~11.~~10.

Commitments and Contingencies

in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 – “Financial Statements.”

Item 1A — Risk Factors

There have been no material changes in the risk factors described in Part I, Item 1A – “Risk Factors” of the Company’s Annual Report on ~~Form~~

~~10-K~~Form10-K

for the year ended December 31, ~~2019, except for the following additional risk factors, which supplement and, in some cases, update those risk factors discussed in our Form~~

~~10-K:~~

~~Our financial and operational performance has been and may continue to be negatively influenced by the consequences of the~~

~~COVID-19~~

~~pandemic.~~

~~The~~

~~COVID-19~~

pandemic and the response of governments worldwide to contain its spread negatively influenced our financial and operational performance for the three completed quarters of 2020, and future developments may have a potentially more substantial negative influence on our financial and operational performance over an unknown period of time. During the first quarter of 2020, we experienced certain supply chain constraints associated

~~with COVID-19,~~

and such constraints contributed to lower revenue, reduced shipments, production inefficiencies, reduced productivity, and higher costs. During the second quarter of 2020, we experienced similar pandemic-related circumstances, as the impact of the pandemic shifted from affecting primarily Asian, and principally Chinese, customers, distribution partners, and suppliers during the first quarter of 2020, to affecting primarily domestic customers, distribution partners, and suppliers during the second quarter of 2020. In March 2020, certain U.S. customers began curtailing new order placement, reflecting their own lowered sales or production forecasts, and this lower level of domestic orders continued through the second quarter, contributing to lower revenue from these domestic customers during the second and third quarters of 2020. New orders from domestic customers, notably our stocking distributors, rose during the third quarter of 2020, and new orders remained strong from Asian, notably Chinese, customers, reflecting the relative strength of economic activity across that region. However, given the continued uncertainty surrounding the

~~COVID-19~~

~~pandemic, there can be no assurance that future circumstances associated with the pandemic will not have a materially negative influence on our future financial and operational performance.~~

We have taken action to protect the health and safety of our workforce, the costs of which, to date, have not had a material effect on our financial performance. 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. 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.~~

~~The expansion of the production area of our Andover manufacturing facility may result in disruptions, delays, or cost increases.~~

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. Based on our extended long-term volume forecast, we anticipate additional capacity will be required to meet expected requirements. We believe the most appropriate manner of meeting our long-term capacity requirements will be to initially expand the production area of our Andover facility by approximately 90,000 square feet, through the addition of a

~~two-story~~

wing. In December 2019, we acquired, for approximately $1.5 million, approximately three acres adjacent to our facility to accommodate our Andover facility expansion. During the second quarter of 2020, we began construction of the approximately 90,000 square feet addition to our existing plant, and that construction continues on schedule.

Construction activity can be difficult to schedule, and construction sites can present management and operational challenges. As such, given the proximity of the addition to our existing operations, this construction activity has the potential to disrupt our current operations, which could cause production to be delayed and costs to increase.

~~-36-~~

~~Table of Contents~~

~~Vicor Corporation~~

~~Part II – Other Information~~

~~September 30, 2020~~

We continue to invest in our production machinery and equipment in order to enhance the efficiency and capacity of our current manufacturing capabilities. However, sustained, uniform, high-volume production levels may not be achievable due to difficulties in planning, implementing, or executing such improvements. In such event, our product-level profitability may not reach the levels necessary to adequately cover manufacturing costs and operating expenses. Similarly, our estimates for revenue capacity generated through capital expenditures on our existing machinery and facility (or the possible construction of any new facilities) may not meet management expectations.

In addition, once the facility expansion is completed, we may not experience the anticipated operating efficiencies as we commence manufacturing operations within the newly-expanded facility. Any delay in achieving anticipated operating efficiencies associated with added capacity may cause manufacturing costs to be higher than expected for some period of time, thereby potentially negatively influencing our operating and financial results.

We may experience challenges in implementing the manufacturing processes we expect to be transitioning from an external third-party partner to a dedicated, internal capability. This transition will require near-term development of new operational competencies, and if such development is delayed, we may experience reduced manufacturing yields, delays in product deliveries, and/or increased expenses as we develop these competencies.

The scheduled facility expansion described above includes installation of certain equipment and implementation of certain manufacturing steps associated with manufacturing processes we currently outsource to a third-party partner. These manufacturing processes are associated with a proprietary packaging approach requiring complex metal surface finishing using advanced, environmentally safe technologies. 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 capacity currently available from our third-party partner. 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 competencies we believe will enable us to successfully install and implement these manufacturing processes internally.

We previously entered into a supply agreement with the third-party partner providing for technology and process transfer, including the purchase of uniquely enabling equipment developed by the third-party partner. We expect to rely on our third-party partner for production requirements through the installation and qualification of the equipment. We also expect to rely on our third-party partner in the future for surge capacity requirements. If we are unable to complete our expansion in a timely manner, or if we are unable to implement the new manufacturing processes, we may not be able to achieve the capacity anticipated and, as a result, may experience reduced manufacturing yields, delays in product deliveries, and/or increased expenses, which would negatively influence our financial condition and results of operations. In addition, any interruptions to or issues with our relationships with third-party partners may negatively influence our manufacturing yields and revenue capacities.

Item 6 — Exhibits


Exhibit Number		Description

3.1		Restated Certificate of Incorporation, dated February 28, 1990 (1)

3.2		Certificate of Ownership and Merger Merging Westcor Corporation, a Delaware Corporation, into Vicor Corporation, a Delaware corporation, dated December 3, 1990 (1)

3.3		Certificate of Amendment of Restated Certificate of Incorporation, dated May 10, 1991 (1)

3.4		Certificate of Amendment of Restated Certificate of Incorporation, dated June 23, 1992 (1)

3.5		Bylaws, as amended (2)

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act.

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act.

~~-37-~~

~~Table of Contents~~

~~Vicor Corporation~~

~~Part II – Other Information~~

~~September 30, 2020~~


32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document.

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

(1)	Filed as an exhibit to the Company’s Annual Report on Form 10-K filed on March 29, 2001 (File No. 000-18277) and incorporated herein by reference.

(2)	Filed as an exhibit to the Company’s Current Report on Form 8-K filed on June 4, 2020 (File No. 000-18277) and incorporated herein by reference.

~~-38-~~-34-

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	VICOR CORPORATION

Date: ~~October 30, 2020~~November 3, 2021	By:	/s/ Patrizio Vinciarelli
		Patrizio Vinciarelli
		Chairman of the Board, President and
		Chief Executive Officer
		(Principal Executive Officer)

Date: ~~October 30, 2020~~November 3, 2021	By:	/s/ James ~~A. Simms~~F. Schmidt
		James ~~A. Simms~~F. Schmidt
		Vice President, Chief Financial Officer
		(Principal Financial Officer)

~~-39-~~-35-


Three months ended September 30, 2020	Class B Common Stock		Common Stock		Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Vicor Corporation Stockholders’ Equity			Noncontrolling Interest		Total Equity
Balance on June 30, 2020	$	118	$	431	$	320,988		$	144,030	$	(316	)	$	(138,927	)	$	326,324		$	319	$	326,643
Issuance of Common Stock under employee stock plans				2		3,449											3,451					3,451
Additional expenses associated with issuance of Common Stock in public offering (see Note 5)						(51	)										(51	)				(51	)
Stock-based compensation expense						1,640											1,640					1,640
Components of comprehensive income, net of tax:
Net income									5,785								5,785			1		5,786
Other comprehensive income											113						113			6		119

Total comprehensive income																	5,898			7		5,905

Balance on September 30, 2020	$	118	$	433	$	326,026		$	149,815	$	(203	)	$	(138,927	)	$	337,262		$	326	$	337,588


Nine months ended September 30, 2020	Class B Common Stock		Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Vicor Corporation Stockholders’ Equity		Noncontrolling Interest		Total Equity
Balance on December 31, 2019	$	118	$	405	$	201,251	$	143,098	$	(383	)	$	(138,927	)	$	205,562	$	308	$	205,870
Issuance of Common Stock under employee stock plans				10		10,826										10,836				10,836
Issuance of Common Stock in public offering, net (see Note 5)				18		109,663										109,681				109,681
Stock-based compensation expense						4,286										4,286				4,286
Components of comprehensive income, net of tax:
Net income								6,717								6,717		10		6,727
Other comprehensive income										180						180		8		188

Total comprehensive income																6,897		18		6,915

Balance on September 30, 2020	$	118	$	433	$	326,026	$	149,815	$	(203	)	$	(138,927	)	$	337,262	$	326	$	337,588


Three months ended September 30, 2019	Class B Common Stock		Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Vicor Corporation Stockholders’ Equity		Noncontrolling Interest			Total Equity
Balance on June 30, 2019	$	118	$	403	$	196,698	$	135,849	$	(278	)	$	(138,927	)	$	193,863	$	453		$	194,316
Issuance of Common Stock under employee stock plans				1		1,715										1,716					1,716
Stock-based compensation expense						753										753					753
Components of comprehensive income, net of tax:
Net income								5,937								5,937		(5	)		5,932
Other comprehensive loss																—		(1	)		(1	)

Total comprehensive income																5,937		(6	)		5,931

Balance on September 30, 2019	$	118	$	404	$	199,166	$	141,786	$	(278	)	$	(138,927	)	$	202,269	$	447		$	202,716


Nine months ended September 30, 2019	Class B Common Stock		Common Stock		Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Vicor Corporation Stockholders’ Equity			Noncontrolling Interest		Total Equity
Balance on December 31, 2018	$	118	$	402	$	193,457		$	129,000	$	(394	)	$	(138,927	)	$	183,656		$	434	$	184,090
Issuance of Common Stock under employee stock plans				2		3,421											3,423					3,423
Stock-based compensation expense						2,292											2,292					2,292
Other						(4	)										(4	)				(4	)
Components of comprehensive income, net of tax:
Net income									12,786								12,786			8		12,794
Other comprehensive income											116						116			5		121

Total comprehensive income																	12,902			13		12,915

Balance on September 30, 2019	$	118	$	404	$	199,166		$	141,786	$	(278	)	$	(138,927	)	$	202,269		$	447	$	202,716


Balance at the beginning of the period	$	451
Payments		(186	)

Balance at the end of the period	$	265


	Increase (decrease)
Travel expense	$	(690	)	(79.4	)%(1)
Commissions		(191	)	(21.6	)%(2)
Outside services		(173	)	(25.4	)%(3)
Compensation		812		8.6	%(4)
Other, net		11		0.4	%

	$	(231	)	(1.5	)%

Large accelerated filer

Smaller reporting company

Accelerated filer

Emerging growth company

Non-accelerated
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