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. Results of Operations
Nine Months Ended
The following table presents our Statements of Operations data, expressed as a percentage of revenue for the nine months endedSeptember 30, 2020 and 2019: Nine months endedSeptember 30 In thousands, except percentages 2020
2019
Revenues:
Digital product sales$ 5,257 76.7 %$ 10,155 85.9 % Digital product lease and maintenance 1,601 23.3 % 1,663 14.1 % Total revenues 6,858 100.0 % 11,818 100.0 % Cost of revenues: Cost of digital product sales 6,528 95.2 % 7,919 67.0 % Cost of digital product lease and maintenance 471 6.9 % 584 4.9 % Total cost of revenues 6,999 102.1 % 8,503 71.9 % Gross (loss) profit (141) (2.1) % 3,315 28.1 % General and administrative and restructuring expenses (2,942) (42.9) % (3,733) (31.6) % Operating loss (3,083) (45.0) % (418) (3.5) % Interest expense, net (363) (5.3) % (402) (3.4) % Gain (loss) on foreign currency remeasurement 64 1.0 % (78) (0.7) % Loss on extinguishment of debt 137 2.0 % (193) (1.6) % Pension benefit (expense) 110 1.6 % (55) (0.5) % Loss before income taxes (3,135) (45.7) % (1,146) (9.7) % Income tax expense (19) (0.3) % (19) (0.2) % Net loss$ (3,154) (46.0) %$ (1,165) (9.9) %
Total revenues for the nine months ended
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Digital product sales revenues decreased$4.9 million or 48.2% for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 , 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 decreased$62,000 or 3.7% for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 , primarily due to the continued expected revenue decline in the older outdoor display equipment rental bases acquired in the early 1990s, partially offset by an increase in display equipment maintenance agreements. 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 nine months endedSeptember 30, 2020 increased$2.7 million to$3.1 million from$418,000 for the nine months endedSeptember 30, 2019 , principally due to the decrease in revenues and an increase in the cost of revenues as a percentage of revenues. Digital product sales operating income (loss) decreased$3.5 million to a loss of$2.9 million for the nine months endedSeptember 30, 2020 compared to income of$584,000 for the nine months endedSeptember 30, 2019 , primarily due to the decrease in revenues. The cost of Digital product sales decreased$1.4 million or 17.6%, primarily due to the reduction in revenues and the completion of the consolidation of our manufacturing facilities. The cost of Digital product sales represented 124.2% of related revenues in 2020 compared to 78.0% in 2019. This increase as a percentage of revenues is primarily due to the lack of reduction of fixed manufacturing costs despite the reduction in revenues, as well as the completion of the consolidation of our manufacturing facilities. General and administrative expenses for Digital product sales decreased$21,000 or 1.3%, primarily due to a decrease in bad debt expenses and employees' expenses, partially offset by an increase in marketing expenses. Digital product lease and maintenance operating income increased$105,000 or 10.8% for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 , primarily as a result of a decrease in the cost of Digital product lease and maintenance and a decrease in general and administrative expenses. The cost of Digital product lease and maintenance decreased$113,000 or 19.3%, primarily due to a decrease in depreciation expense. The cost of Digital product lease and maintenance revenues represented 29.4% of related revenues in 2020 compared to 35.1% 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$54,000 or 49.1%, primarily due to a reduction in employees' expenses. Corporate general and administrative expenses decreased$716,000 or 36.3% for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 , primarily due to a reduction in relocation, employee, rent, legal and directors' expenses, partially offset by an increase in warrant expense. 22
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Net interest expense decreased
The gain on extinguishment of debt for the nine months endedSeptember 30, 2020 represented the reversal of accrued interest on the Hazelwood loan, which was terminated inJuly 2020 . The loss on extinguishment of debt for the nine months endedSeptember 30, 2019 represented the write-off of the remaining debt discount costs and the termination fees related to former loans from CNH andSM Investors . The effective tax rate for the nine months endedSeptember 30, 2020 and 2019 was 0.6% and 1.7%, respectively. Both the 2020 and 2019 tax rates are being affected by the valuation allowance on the Company's deferred tax assets as a result of reporting pre-tax losses.
Three Months Ended
The following table presents our Statements of Operations data, expressed as a percentage of revenue for the three months endedSeptember 30, 2020 and 2019: Three months ended September 30 In thousands, except percentages 2020 2019
Revenues:
Digital product sales$ 2,405 83.0 %$ 3,951 88.3 % Digital product lease and maintenance 491 17.0 % 521 11.7 % Total revenues 2,896 100.0 % 4,472 100.0 % Cost of revenues: Cost of digital product sales 2,822 97.4 % 3,178 71.0 % Cost of digital product lease and maintenance 146 5.1 % 195 4.4 % Total cost of revenues 2,968 102.5 % 3,373 75.4 % Gross (loss) profit (72) (2.5) % 1,099 24.6 % General and administrative and restructuring expenses (704) (24.3) % (1,313) (29.4) % Operating loss (776) (26.8) % (214) (4.8) % Interest expense, net (100) (3.4) % (67) (1.5) % (Loss) gain on foreign currency remeasurement (49) (1.7) % 29 0.7 % Gain on extinguishment of debt 137 4.7 % - - % Pension benefit (expense) 37 1.3 % (18) (0.4) % Loss before income taxes (751) (25.9) % (270) (6.0) % Income tax expense (7) (0.3) % (7) (0.2) % Net loss$ (758) (26.2) %$ (277) (6.2) %
Total revenues for the three months ended
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Digital product sales revenues decreased$1.5 million or 39.1% for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 , primarily due to a decrease in the sports market, principally due to coronavirus concerns. Digital product lease and maintenance revenues decreased$30,000 or 5.8% for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 , 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 endedSeptember 30, 2020 increased$562,000 to$776,000 from$214,000 for the three months endedSeptember 30, 2019 , principally due to the decrease in revenues and an increase in the cost of revenues as a percentage of revenues. Digital product sales operating income (loss) decreased$1.2 million to a loss of$1.0 million for the three months endedSeptember 30, 2020 compared to income of$220,000 for the three months endedSeptember 30, 2019 , primarily due to the decrease in revenues and an increase in the cost of revenue as a percentage of revenues. The cost of Digital product sales decreased$356,000 or 11.2%, primarily due to the decrease in revenues. The cost of Digital product sales represented 117.3% of related revenues in 2020 compared to 80.4% in 2019. This increase as a percentage of revenues is primarily due to the lack of reduction of fixed manufacturing costs despite the reduction in revenues. General and administrative expenses for Digital product sales increased$38,000 or 6.9%, primarily due to an increase in bad debt expenses, partially offset by a decrease in employees' expenses. Digital product lease and maintenance operating income increased$50,000 or 16.9% for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 , primarily as a result of a decrease in the cost of Digital product lease and maintenance and a decrease in general and administrative expenses, partially offset by the decrease in revenues. The cost of Digital product lease and maintenance decreased$49,000 or 25.1%, primarily due to a decrease in depreciation expense. The cost of Digital product lease and maintenance revenues represented 29.7% of related revenues in 2020 compared to 37.4% 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$31,000 or 103.3%, primarily due to a reduction in employees' expenses and bad debt expenses. Corporate general and administrative expenses decreased$616,000 or 84.4% for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 , primarily due to a reduction in employee, rent, legal and directors' expenses. Net interest expense increased$33,000 or 49.3% for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 , primarily due an increase in the average outstanding long-term debt, primarily due to an increase in the balance owed under revolving credit loans and term loans including the PPP loan, partially offset by decreases in interest rates. 24
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The gain on extinguishment of debt for the three months endedSeptember 30, 2020 represented the reversal of accrued interest on the Hazelwood loan, which was terminated inJuly 2020 . The effective tax rate for the three months endedSeptember 30, 2020 and 2019 was 0.9% and 2.6%, 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$3.2 million in the nine months endedSeptember 30, 2020 and had a working capital deficiency of$5.9 million as ofSeptember 30, 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, customer deposits and accrued liabilities, as well as decreases in receivables, cash, inventories and prepaids and other assets, partially offset by a decrease in accounts payable. 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$2.0 million and$4.8 million from operating activities for the nine months endedSeptember 30, 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 manufacturing and 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. 25
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Cash, cash equivalents and restricted cash decreased$1.4 million in the nine months endedSeptember 30, 2020 to$31,000 atSeptember 30, 2020 from$1.4 million atDecember 31, 2019 . The decrease is primarily attributable to cash used in operating activities of$2.0 million , paydown of$650,000 on the Hazelwood loan and investments in equipment for rental, property and equipment of$190,000 , partially offset by borrowing on the revolving loan of$686,000 and proceeds from the PPP loan of$811,000 . 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.
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 $ 3,247 $ 547 $ 183 $ - $ -
Pension plan payments - 973 490 324 212
Employment agreement obligations - - - - -
Estimated warranty liability 47 152 116 70 44
Contract manufacturing agreement 32 - - - -
Operating lease payments 112 370 348 309 -
Total $ 3,438 $ 2,042 $ 1,137 $ 703 $ 256
As of September 30, 2020 , the Company still had outstanding $352,000 of Notes
which matured as of March 1, 2012 . The Company also still had outstanding
$220,000 of Debentures which matured on December 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.
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Table of Contents 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 ofJune 30, 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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