TRANS-LUX CORPORATION Overview
Trans-Lux is a leading supplier of LED technology for display applications.
The
essential elements of these systems are the real-time, programmable digital
products that we design, manufacture, distribute and service. Designed to meet
the digital signage solutions for any size venue's indoor and outdoor needs,
these displays are used primarily in applications for the financial, banking,
gaming, corporate, advertising, transportation, entertainment and sports
markets. The Company operates in two reportable segments: Digital product sales
and Digital product lease and maintenance.
The Digital product sales segment includes worldwide revenues and related
expenses from the sales of both indoor and outdoor digital product signage.
This segment includes the financial, government/private, gaming, scoreboards and
outdoor advertising markets. The Digital product lease and maintenance segment
includes worldwide revenues and related expenses from the lease and maintenance
of both indoor and outdoor digital product signage. This segment includes the
lease and maintenance of digital product signage across all markets.
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Table of Contents Results of Operations
Three Months Ended
The following table presents our Statements of Operations data, expressed as a
percentage of revenue for the three months ended
Three months ended
March 31
In thousands, except percentages 2020 2019
Revenues:
Digital product sales$ 1,334 69.7 %$ 3,091 85.9 % Digital product lease and maintenance 579 30.3 % 508 14.1 % Total revenues 1,913 100.0 % 3,599 100.0 % Cost of revenues: Cost of digital product sales 1,703 89.0 % 2,522 70.1 % Cost of digital product lease and maintenance 186 9.7 % 209 5.8 % Total cost of revenues 1,889 98.7 % 2,731 75.9 % Gross profit 24 1.3 % 868 24.1 % General and administrative and restructuring expenses (1,191) (62.3) % (1,107) (30.7) % Operating loss (1,167) (61.0) % (239) (6.6) % Interest expense, net (108) (5.6) % (255) (7.1) % Gain (loss) on foreign currency remeasurement 202 10.6 % (57) (1.6) % Gain on extinguishment of debt - - % 52 1.4 % Pension benefit (expense) 36 1.9 % (18) (0.5) % Loss before income taxes (1,037) (54.2) % (517) (14.4) % Income tax expense (6) (0.3) % (6) (0.1) % Net loss$ (1,043) (54.5) %$ (523) (14.5) % Total revenues for the three months endedMarch 31, 2020 decreased$1.7 million or 46.8% to$1.9 million from$3.6 million for the three months endedMarch 31, 2019 , primarily due to decreases in Digital product sales. Digital product sales revenues decreased$1.8 million or 56.8%, primarily due to a decrease in shipments as we completed the consolidation of our manufacturing facilities, followed by delays in shipments from suppliers due to the onset of the coronavirus inAsia , followed by a brief shutdown of our manufacturing facility at the onset of the coronavirus inthe United States . Digital product lease and maintenance revenues increased$71,000 or 14.0%, primarily due to an increase in display equipment maintenance agreements, partially offset by the continued expected revenue decline in the older outdoor display equipment rental bases acquired in the early 1990s. The financial services market continues to be negatively impacted by the current investment climate resulting in consolidation within that industry and the wider use of flat-panel screens for smaller applications.
Total operating loss for the three months ended
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Digital product sales operating income decreased$1.1 million to a loss of$982,000 for the three months endedMarch 31, 2020 compared to income of$116,000 for the three months endedMarch 31, 2019 , primarily due to the decrease in revenues and an increase in general and administrative expenses. The cost of Digital product sales decreased$819,000 or 32.5%, primarily due to the reduction in revenues and the completion of the consolidation of our manufacturing facilities. The cost of Digital product sales represented 127.7% of related revenues in 2020 compared to 81.6% in 2019. This increase as a percentage of revenues is primarily due to the completion of the consolidation of our manufacturing facilities. General and administrative expenses for Digital product sales increased$160,000 or 35.3%, primarily due to an increase in bad debt expenses. Digital product lease and maintenance operating income increased$104,000 or 40.3%, primarily as a result of the increase in revenues as well as a decrease in the cost of Digital product lease and maintenance. The cost of Digital product lease and maintenance decreased$23,000 or 11.0%, primarily due to a decrease in depreciation expense. The cost of Digital product lease and maintenance revenues represented 32.1% of related revenues in 2020 compared to 41.1% in 2019. The cost of Digital product lease and maintenance includes field service expenses, plant repair costs, maintenance and depreciation. General and administrative expenses for Digital product lease and maintenance decreased$10,000 or 24.4%, primarily due to a reduction in employees' expenses.
Corporate general and administrative expenses decreased
Net interest expense decreased$147,000 or 57.6%, primarily due to a decrease in interest rates and the average outstanding long-term debt, primarily due to the decrease in the balance owed under revolving credit loans and theSM Investors loans. The effective tax rate for the three months endedMarch 31, 2020 and 2019 was 0.6% and 1.2%, respectively. Both the 2020 and 2019 tax rates are being affected by the valuation allowance on the Company's deferred tax assets as a result of reporting pre-tax losses.
Liquidity and Capital Resources
Current Liquidity The Company has incurred significant recurring losses and continues to have a significant working capital deficiency. The Company incurred a net loss of$1.0 million in the three months endedMarch 31, 2020 and had a working capital deficiency of$4.4 million as ofMarch 31, 2020 . As ofDecember 31, 2019 , the Company had a working capital deficiency of$3.1 million . The increase in the working capital deficiency is primarily due to increases in the current portion of long-term debt and accounts payable, as well as decreases in accounts receivable and prepaids and other assets, partially offset by a decrease in accrued liabilities. OnJuly 2, 2020 , the Company and the City of Hazelwood agreed to a termination of the loan and a forgiveness of all accrued interest. The principal balance of$650,000 was repaid from Restricted Cash on that date and the forgivable loan was satisfied in full. The Restricted Cash is included in non-current assets and the loan is included in long-term liabilities, so there is no impact on the working capital deficiency related to the principal repayment. The interest forgiveness of$137,000 in July will result in a reduction in interest expense and a reduction in the working capital deficiency at that time. 22
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The Company is dependent on future operating performance in order to generate sufficient cash flows in order to continue to run its businesses. Future operating performance is dependent on general economic conditions, as well as financial, competitive and other factors beyond our control, including the impact of the current economic environment, the spread of major epidemics (including coronavirus) and other related uncertainties such as government imposed travel restrictions, interruptions to supply chains and extended shut down of businesses. In order to more effectively manage its cash resources, the Company had, from time to time, increased the timetable of its payment of some of its payables, which delayed certain product deliveries from our vendors, which in turn delayed certain deliveries to our customers. There is substantial doubt as to whether we will have adequate liquidity, including access to the debt and equity capital markets, to operate our business over the next 12 months from the date of issuance of this Form 10-Q. A stockholder of the Company has committed to providing additional capital up to$2.0 million , to the extent necessary to fund operations. The Company continually evaluates the need and availability of long-term capital in order to meet its cash requirements and fund potential new opportunities. The Company used cash of$754,000 and$803,000 from operating activities for the three months endedMarch 31, 2020 and 2019, respectively. The Company has implemented several initiatives to improve operational results and cash flows over future periods, including reducing head count, reorganizing its sales department and outsourcing certain administrative functions. The Company continues to explore ways to reduce operational and overhead costs. The Company periodically takes steps to reduce the cost to maintain the digital products on lease and maintenance agreements. Cash, cash equivalents and restricted cash increased$45,000 in the three months endedMarch 31, 2020 to$1.43 million atMarch 31, 2020 from$1.38 million atDecember 31, 2019 . The increase is primarily attributable to borrowings on the revolving loan of$977,000 , partially offset by cash used in operating activities of$754,000 and investments in equipment for rental, property and equipment of$179,000 . The current economic environment has increased the Company's trade receivables collection cycle, and its allowances for uncollectible accounts receivable, but collections continue to be favorable. Under various agreements, the Company is obligated to make future cash payments in fixed amounts. These include payments under the Company's current and long-term debt agreements, pension plan minimum required contributions, employment agreement payments and rent payments required under operating lease agreements. The Company has both variable and fixed interest rate debt. Interest payments are projected based on actual interest payments incurred in 2020 until the underlying debts mature. 23
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The following table summarizes the Company's fixed cash obligations as of
Remainder of
In thousands 2020 2021 2022 2023 2024
Long-term debt, including interest
$ - Pension plan payments - 973 490 324
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Employment agreement obligations 225 - - - - Estimated warranty liability 125 132 99 56 32 Operating lease payments 379 370 348 309 - Total$ 4,160 $ 1,475 $ 937 $ 689 $ 244 As ofMarch 31, 2020 , the Company still had outstanding$352,000 of Notes which matured as ofMarch 1, 2012 . The Company also still had outstanding$220,000 of Debentures which matured onDecember 1, 2012 . The Company continues to consider future exchanges of the Notes and Debentures, but has no agreements, commitments or understandings with respect to any further such exchanges. The Company may still seek additional financing in order to provide enough cash to cover our remaining current fixed cash obligations as well as providing working capital. However, there can be no assurance as to the amounts, if any, the Company will receive in any such financing or the terms thereof. The Company has no agreements, commitments or understandings with respect to any such financings. To the extent the Company issues additional equity securities, it could be dilutive to existing shareholders.
For a further description of the Company's long-term debt, see Note 7 to the Condensed Consolidated Financial Statements - Long-Term Debt.
Pension Plan Contributions The minimum required pension plan contribution for 2020 is expected to be$641,000 , of which the Company has already contributed$85,000 as ofMarch 31, 2020 . As allowed by the CARES Act, the Company has elected to defer the payment of the$556,000 of remaining minimum required contributions due in 2020 untilJanuary 1, 2021 . See Note 8 to the Condensed Consolidated Financial Statements - Pension Plan for further details.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
The Company may, from time to time, provide estimates as to future performance.
These forward-looking statements will be estimates and may or may not be
realized by the Company. The Company undertakes no duty to update such
forward-looking statements. Many factors could cause actual results to differ
from these forward-looking statements, including loss of market share through
competition, introduction of competing products by others, pressure on prices
from competition or purchasers of the Company's products, interest rate and
foreign exchange fluctuations, terrorist acts and war.
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