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
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 2022 2021
Revenues:
Digital product sales$ 3,237 88.3 %$ 2,093 80.9 % Digital product lease and maintenance 428 11.7 % 493 19.1 % Total revenues 3,665 100.0 % 2,586 100.0 % Cost of revenues: Cost of digital product sales 2,958 80.7 % 2,254 87.2 % Cost of digital product lease and maintenance 165 4.5 % 153 5.9 % Total cost of revenues 3,123 85.2 % 2,407 93.1 % Gross profit 542 14.8 % 179 6.9 % General and administrative and restructuring expenses (762) (11.1) % (799) (30.9) % Operating loss (220) (6.0) % (620) (24.0) % Interest expense, net (142) (3.9) % (103) (4.0) % Loss on foreign currency remeasurement (16) (0.4) % (36) (1.4) % Gain on extinguishment of debt - - % 77 3.0 % Gain on forgiveness of PPP loan 824 22.5 % - - % Pension benefit 53 1.4 % 67 2.6 % Income (loss) before income taxes 499 13.6 % (615) (23.8) % Income tax expense (6) (0.2) % (6) (0.2) % Net income (loss)$ 493 13.5 %$ (621) (24.0) % Total revenues for the three months endedMarch 31, 2022 increased$1.1 million or 41.7% to$3.7 million from$2.6 million for the three months endedMarch 31, 2021 , primarily due to increases in Digital product sales. Digital product sales revenues increased$1.1 million or 54.7%, primarily due to the return of customer orders since COVID-19 pandemic restrictions have been reduced or eliminated over the past year. Digital product lease and maintenance revenues decreased$65,000 or 13.2%, 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. 18
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Total operating loss for the three months ended
Digital product sales operating loss decreased$555,000 to$71,000 for the three months endedMarch 31, 2022 compared to$626,000 for the three months endedMarch 31, 2021 , primarily due to the increase in revenues and a decrease in the cost of revenues as a percentage of revenues, as well as a decrease in general and administrative expenses. The cost of Digital product sales increased$704,000 or 31.2%, primarily due to the increase in revenues. The cost of Digital product sales represented 91.4% of related revenues in 2022 compared to 107.7% in 2021. This decrease as a percentage of revenues is primarily due to manufacturing efficiencies due to the increase in revenues. General and administrative expenses for Digital product sales decreased$115,000 or 24.7%, primarily due to decreases in consulting expenses, partially offset by increases in bad debt expenses and employees' expenses. Digital product lease and maintenance operating income decreased$62,000 or 19.4%, primarily due to the decrease in revenues and an increase in the cost of Digital product lease and maintenance. The cost of Digital product lease and maintenance increased$12,000 or 7.8%, primarily due to an increase in the cost of service agents, partially offset by a decrease in depreciation expense. The cost of Digital product lease and maintenance revenues represented 38.6% of related revenues in 2022 compared to 31.0% in 2021. 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$15,000 or 71.4%, primarily due to a reduction in bad debt expenses.
Corporate general and administrative expenses increased
Net interest expense increased
The effective tax rate for the three months endedMarch 31, 2022 and 2021 was 1.2% and 1.0%, respectively. Both the 2022 and 2021 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 recorded income of$493,000 in the three months endedMarch 31, 2022 but recorded a loss of$5.0 million in the year endedDecember 31, 2021 . The Company had working capital deficiencies of$9.3 million and$9.8 million as ofMarch 31, 2022 andDecember 31, 2020 , respectively. The change in the working capital deficiency was primarily affected by increases in the accounts receivable, inventories and prepaids and other assets, as well as decreases in accounts payable and current portion of long-term debt, partially offset by a decrease in cash as well as increases in accrued liabilities, current lease liabilities and customer deposits. 19
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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$828,000 and generated cash of$238,000 from operating activities for the three months endedMarch 31, 2022 and 2021, 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 and cash equivalents decreased$141,000 in the three months endedMarch 31, 2022 to$383,000 atMarch 31, 2022 from$524,000 atDecember 31, 2021 . The decrease is primarily attributable to cash used in operating activities of$828,000 , partially offset by proceeds from long-term debt borrowings of$250,000 and refund proceeds from loan forgiveness of$453,000 . 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 2022 until the underlying debts mature. As interest rates have increased in 2022, and may continue to increase, the amounts the Company pays for interest could exceed the projected amounts. 20
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The following table summarizes the Company's fixed cash obligations as of
Remainder of
In thousands 2022 2023 2024 2025 2026
Long-term debt, including interest $ 3,733 $ - $ 31 $ 31 $ 31
Pension plan payments 138 - 179 129 60
Estimated warranty liability 314 114 86 50 33
Operating lease payments 355 452 146 149 152
Total $ 4,540 $ 566 $ 442 $ 359 $ 276
As of March 31, 2022 , the Company had outstanding $302,000 of Notes which
matured as of March 1, 2012 . The Company also 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.
Pension Plan Contributions The minimum required pension plan contribution for 2022 is expected to be$138,000 , none of which the Company has contributed as ofMarch 31, 2022 . 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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