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.
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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. Results of Operations
Six Months Ended
The following table presents our Statements of Operations data, expressed as a
percentage of revenue for the six months ended
Six months ended June 30
In thousands, except percentages 2021 2020
Revenues:
Digital product sales$ 4,489 82.0 %$ 2,852 72.0 % Digital product lease and maintenance 984 18.0 % 1,110 28.0 % Total revenues 5,473 100.0 % 3,962 100.0 % Cost of revenues: Cost of digital product sales 5,276 96.4 % 3,706 93.5 % Cost of digital product lease and maintenance 317 5.8 % 325 8.2 % Total cost of revenues 5,593 102.2 % 4,031 101.7 % Gross loss (120) (2.2) % (69) (1.7) % General and administrative and restructuring expenses (1,543) (28.2) % (2,238) (56.5) % Operating loss (1,663) (30.4) % (2,307) (58.2) % Interest expense, net (260) (4.7) % (263) (6.6) % (Loss) gain on foreign currency remeasurement (72) (1.3) % 113 2.8 % Gain on extinguishment of debt 77 1.4 % - - % Pension benefit 134 2.4 % 73 1.8 % Loss before income taxes (1,784) (32.6) % (2,384) (60.2) % Income tax expense (12) (0.2) % (12) (0.3) % Net loss$ (1,796) (32.8) %$ (2,396) (60.5) % Total revenues for the six months endedJune 30, 2021 increased$1.5 million or 38.1% to$5.5 million from$4.0 million for the six months endedJune 30, 2020 , primarily due to an increase in Digital product sales.
Digital product sales revenues increased
Digital product lease and maintenance revenues decreased$126,000 or 11.4% for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 , primarily due to 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. 19
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Total operating loss for the six months endedJune 30, 2021 decreased$644,000 or 27.9% to$1.7 million from$2.3 million for the six months endedJune 30, 2020 , principally due to the increase in revenues. Digital product sales operating loss decreased$173,000 to$1.7 million for the six months endedJune 30, 2021 compared to$1.9 million for the six months endedJune 30, 2020 , primarily due to the increase in revenues and a decrease in the cost of revenue as a percentage of revenues. The cost of Digital product sales increased$1.6 million or 42.4%, primarily due to the increase in revenues.
The
cost of Digital product sales represented 117.5% of related revenues in 2021 compared to 129.9% in 2020. This decrease as a percentage of revenues is primarily due to greater volume of revenues. General and administrative expenses for Digital product sales decreased$106,000 or 10.2%, primarily due to decreases in employees' expenses, partially offset by an increase in consulting expenses. Digital product lease and maintenance operating income decreased$86,000 or 11.8% for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 , primarily as a result of the decrease in revenues, partially offset by a decrease in general and administrative expenses. The cost of Digital product lease and maintenance decreased$8,000 or 2.5%, primarily due to a decrease in depreciation expense, partially offset by an increase in employees' expenses, primarily caused by the extraordinarily low expenses incurred in 2020 due to the onset and uncertainty of the coronavirus. The cost of Digital product lease and maintenance revenues represented 32.2% of related revenues in 2021 compared to 29.3% in 2020. 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$32,000 or 56.1%, primarily due to a reduction in employees' expenses. Corporate general and administrative expenses decreased$557,000 or 48.8% for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 , primarily due to reductions in employees' expenses and legal, rent and insurance expenses. Net interest expense decreased$3,000 or 1.1% for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 , primarily due to a decrease in interest rates. The effective tax rate for the six months endedJune 30, 2021 and 2020 was 0.7% and 0.5%, respectively. Both the 2021 and 2020 tax rates are being affected by the valuation allowance on the Company's deferred tax assets as a result of reporting pre-tax losses. 20
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Three Months Ended
The following table presents our Statements of Operations data, expressed as a
percentage of revenue for the three months ended
Three months ended June 30
In thousands, except percentages 2021 2020
Revenues:
Digital product sales$ 2,396 83.0 %$ 1,518 74.1 % Digital product lease and maintenance 491 17.0 % 531 25.9 % Total revenues 2,887 100.0 % 2,049 100.0 % Cost of revenues: Cost of digital product sales 3,022 104.7 % 2,003 97.7 % Cost of digital product lease and maintenance 164 5.7 % 139 6.8 % Total cost of revenues 3,186 110.4 % 2,142 104.5 % Gross loss (299) (10.4) % (93) (4.5) % General and administrative and restructuring expenses (744) (25.7) % (1,047) (51.1) % Operating loss (1,043) (36.1) % (1,140) (55.6) % Interest expense, net (157) (5.5) % (155) (7.6) % Loss on foreign currency remeasurement (36) (1.2) % (89) (4.3) % Pension benefit 67 2.3 % 37 1.8 % Loss before income taxes (1,169) (40.5) % (1,347) (65.7) % Income tax expense (6) (0.2) % (6) (0.3) % Net loss$ (1,175) (40.7) %$ (1,353) (66.0) %
Total revenues for the three months ended
Digital product sales revenues increased$878,000 or 57.8% for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 , primarily due to an increase in the sports market, principally due to the reduced sales revenues in 2020 due to the onset and uncertainty of the coronavirus. Digital product lease and maintenance revenues decreased$40,000 or 7.5% for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 , primarily due to 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
Digital product sales operating loss increased$183,000 to$1.1 million for the three months endedJune 30, 2021 compared to$912,000 for the three months endedJune 30, 2020 , primarily due to an increase in the cost of revenue as a percentage of revenues. The cost of Digital product sales increased$1.0 million or 50.9%, primarily due to the increase in revenues. The cost of Digital product sales represented 126.1% of related revenues in 2021 compared to 131.9% in 2020. This decrease as a percentage of revenues is primarily due to the greater volume of revenues. General and administrative expenses for Digital product sales decreased$42,000 or 9.8%, primarily due to a decrease in employees' expenses, partially offset by increases in consulting expenses and bad debt expenses. 21
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Digital product lease and maintenance operating income decreased$43,000 or 11.7% for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 , primarily as a result of an increase in the cost of Digital product lease and maintenance and the decrease in revenues, partially offset by a decrease in general and administrative expenses. The cost of Digital product lease and maintenance increased$25,000 or 18.0%, primarily due to an increase in service agents and employees' expenses, primarily caused by the extraordinarily low expenses incurred in 2020 due to the onset and uncertainty of the coronavirus, partially offset by a decrease in depreciation expense.
The
cost of Digital product lease and maintenance revenues represented 33.4% of related revenues in 2021 compared to 26.2% in 2020. 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$22,000 or 84.6%, primarily due to decreases in bad debt expenses and employees' expenses. Corporate general and administrative expenses decreased$323,000 or 54.4% for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 , primarily due to reductions in employees' expenses and legal, rent and insurance expenses. Net interest expense increased$2,000 or 1.3% for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 , primarily due to a decrease in interest rates. The effective tax rate for the three months endedJune 30, 2021 and 2020 was 0.5% and 0.4%, respectively. Both the 2021 and 2020 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$1.8 million in the six months endedJune 30, 2021 and had a working capital deficiency of$7.7 million as ofJune 30, 2021 . As ofDecember 31, 2020 , the Company had a working capital deficiency of$6.3 million . The working capital deficiency increased primarily due to decreases in inventories and prepaids and other assets, as well as increases in accounts payable and current portion of long-term debt, offset by an increase in receivables, as well as decreases in accrued liabilities and customer deposits. 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, extended shut down of businesses and the impact of inflation. 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. 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$106,000 and$1.5 million from operating activities for the six months endedJune 30, 2021 and 2020, 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 remained level in the six months endedJune 30, 2021 as compared to the balance of$43,000 atDecember 31, 2020 . The fluctuations are primarily attributable to net borrowings on the revolving loan of$125,000 , partially offset by cash used in operating activities of$106,000 . 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 2021 until the underlying debts mature.
The following table summarizes the Company's fixed cash obligations as of
Remainder of
In thousands 2021 2022 2023 2024 2025
Long-term debt, including interest
$ - Pension plan payments 326 406 355 248 114 Estimated warranty liability 79 124 81 56 27 Operating lease payments 195 348 309 - - Total$ 4,099 $ 1,420 $ 745 $ 304 $ 141 As ofJune 30, 2021 , the Company had outstanding$302,000 of Notes which matured as ofMarch 1, 2012 . The Company also 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. 23
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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 2021 is expected to be$537,000 , of which the Company has already contributed$56,000 as ofJune 30, 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, the impact of inflation, terrorist acts and war.
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