ST. LOUIS--(BUSINESS WIRE)--The Marketing Alliance, Inc. (OTC:MAAL) (“TMA”), today announced financial results for its fiscal 2017 second quarter and six months ended September 30, 2016.
Mr. Timothy M. Klusas, TMA’s Chief Executive Officer, stated, “We were pleased with our performance for the quarter despite two major detractors to our financial results. As we have previously stated, we proactively adjusted our deferred first year commission estimates for Genworth as this future business will decline as new policies (and future commissions) are not generated due to Genworth’s announcement last March to cease all new life insurance and annuity product sales. Also as previously mentioned, the net effect of this adjustment is decreases each month of approximately $30,000 each month of gross profit, or approximately $90,000 this quarter and $180,000 in the first six months of this fiscal year which are the net effect of adjustments to both commission revenues and bonus and commission expenses. Second, the weakness and cyclical nature (bottom of the cycle) of the end agricultural markets in the construction / land improvement business affected our ability to find and complete profitable projects, especially compared to prior year periods and prior years. The difference in gross profit for the construction business was a decrease of approximately $254,000 for the six month period versus the prior year, of which approximately $210,000 was in this quarter versus the prior year period. We have continued to seek new end markets and ways to improve the operating efficiency for each part of the Company, given the operating environment of each respective business, and we remain committed to growing each of line of our business.” Mr. Klusas provided additional details below on each of the Company’s operations for the second quarter of the fiscal 2017 year:
- Insurance Distribution Business: “We continue to work with our current carriers and last quarter announced the addition of two new carrier relationships with John Hancock and One America. While we anticipated the decrease in our new insurance sales as our distributors adjust to new product offerings, the process is often drawn out as carriers come off line and new carriers’ products are added to our portfolio. This is further complicated by the timing of revenues that become uneven, as a carrier going offline may have paid us monthly whereas a new carrier may pay annually. Once again, we always encourage investors to examine our results in four-quarter periods rather than 90-day increments. We commend our network of distributors as they adapt to changes and become acclimated to these new carriers and life insurance product offerings in a dynamic regulatory environment affecting products and selling practices. We remain focused on offering our distributors as much flexibility as possible by supporting a wide variety of products from a diverse network of carriers, and believe that in doing so we are able to help them remain competitive in today’s environment.
- Earth Moving (Land Improvement – Construction): “During the quarter, we continued to pursue additional projects not dependent on agriculture, and therefore not impacted by cyclically low crop prices, which have resulted in reduced revenues for farmers to fund our land improvements for them. In previous years, we were also able to secure projects supported by products whose prices closely followed energy prices as fuel complements and substitutes such as ethanol and bio-fuel products. As energy and fuel prices were low this summer, these projects did not materialize or were deferred into the future as they became less economical to complete. As a result, our equipment often sat idle and we were unable to generate revenue. We remained focused on price discipline and using our assets efficiently, which this past quarter meant not taking work at near marginal cost. We continue to believe that these deferred projects were delayed - not cancelled, and we will undertake the projects that best fit our capabilities in future quarters, even if the timing of these projects is different than previous years, such as winter work.
- Family Entertainment: “We were pleased to report an increase in revenues in this business. The nine facilities acquired, starting in September 2012, have helped to diversify our revenues and offset challenges in the other portions of our operations. We continued to reinvest in this portion of our business and over the past several months, have shifted our focus towards improvements at our existing locations. In an effort to drive revenue and generate higher profits at these facilities, we have established cost savings initiatives that include inventory management and increased control of labor costs. We are focused on our intent to more efficiently operate our family entertainment business and over time for these facilities to provide more efficient operational performance due to increasing economies of scale for the Company by leveraging management across several locations.”
Fiscal 2017 Second Quarter Financial Review
- Total revenues for the three-month period ended September 30, 2016, were $6,240,833, as compared to $6,949,261 in the prior year quarter. The decrease was attributable to a decline in insurance and construction revenue which was partially offset by an increase in revenue for the family entertainment segment of the Company. Revenues were also affected in the insurance distribution business by downward adjustments to our deferred first year commission estimates caused by Genworth ceasing new life insurance and annuity product sales.
- Net operating revenue (gross profit) for the quarter was $1,918,772, compared to net operating revenue of $1,944,925 in the prior-year fiscal period. Net operating revenue decreased for the quarter largely as a result of decreases in insurance distribution and construction revenue for the three-month period.
- Operating expenses increased by $347,421 for the fiscal 2017 second quarter as compared to the prior year, due in part to increases in rent and occupancy expense with the addition of new family entertainment centers as well as increases in depreciation and amortization expenses relating to the Company’s acquisition of four family entertainment centers and starting another one, for five total new stores, since September, 2015.
- Operating income (loss) was ($374,781), compared to operating income (loss) of ($1,207) reported in the prior-year period. The decrease in operating income for the fiscal 2017 second quarter was primarily attributable to the aforementioned increases in operating expenses and decreases in total revenue. Operating income was also impacted due to an increase in general and administrative expenses primarily related to the addition of four family entertainment facilities and decreases in commission and construction revenue reported for the quarter.
- Operating EBITDA (excluding investment portfolio income) for the quarter was ($128,022) loss compared to $205,711 in the prior-year period. A note reconciling operating EBITDA to operating income can be found at the end of this release.
- Investment gain, net (from investment portfolio) for the second quarter ended September 30, 2016 was $316,853, as compared to a net investment loss, net of ($649,086) loss, for the same quarter of the previous fiscal year.
- Net loss for the fiscal 2017 second quarter was ($59,682) loss, or ($0.01) per share, as compared to a net loss of ($423,097), or ($0.06) per share, in the prior year period. The increase in net income was largely due to investment gains and was offset by decreases in commission and construction revenue and an increase in operating expenses for the three-month period.
Fiscal 2017 Six Months Financial Review
- Total revenues for the six months ended September 30, 2016 were $12,512,502, compared to $13,694,415 for the prior-year period. Increases in family entertainment revenue helped to offset some of the decreases in commission and construction revenue for the six-month period.
- Net operating revenue (gross profit) was $4,053,235, which compares to net operating revenue of $3,552,107 in the prior-year fiscal period.
- Operating expenses increased in the first six months of this fiscal year compared to the same period last year due, in part, to increases in operating expenses such as compensation, rent and occupancy, amortization and depreciation expense relating to the Company’s addition of five family entertainment centers since September, 2015.
- The Company reported an operating loss of ($532,160) for the six months ended September 30, 2016, compared to an operating loss of ($77,467) for the prior-year period due to the aforementioned factors discussed above.
- Operating EBITDA (excluding investment revenue) for the six months was $5,859 versus $322,724 in the prior-year period. A note reconciling Operating EBITDA to Operating Income can be found at the end of this release.
- Net income (loss) for the six months ended September 30, 2016 was ($40,684), or ($0.01) per share, an increase of $442,832 compared to ($483,516), or ($0.07) per share, for the prior-year period. The year over year increase was the result of investment gains offset by decreases in commission and construction revenue and higher general and administrative expenses relating to the growth of the Company family entertainment business. The net loss for the six months ended September 30, 2015, was the result of investment losses and an operating loss of ($77,467).
Balance Sheet Information
- TMA’s balance sheet at September 30, 2016 reflected cash and cash equivalents of approximately $5.3 million, working capital of $11.1 million, and shareholders’ equity of $11.4 million; compared to $5.5 million, $10.5 million, and $11.4 million, respectively, at March 31, 2016.
About The Marketing Alliance, Inc.
Headquartered in St. Louis, MO, TMA operates three businesses. TMA provides support to independent insurance brokerage agencies, with a goal of providing members value-added services on a more efficient basis than they can achieve individually. The Company also owns an earth moving and excavating business and nine children’s play and party facilities. Investor information can be accessed through the shareholder section of TMA’s website at: http://www.themarketingalliance.com/shareholder-information.
TMA’s common stock is quoted on the OTC Markets (http://www.otcmarkets.com) under the symbol “MAAL”.
Forward Looking Statement
Investors are cautioned that forward-looking statements involve risks and uncertainties that may affect TMA's business and prospects. Examples of forward-looking statements include, among others, statements we make regarding our expectations for our performance during fiscal 2017 and the production of favorable returns to shareholders, the effects of reconciliation of distributor commissions on our expenses, our ability to obtain new carriers and more economical and faster ways for carrier products to be distributed, our ability to diversify our earth moving and excavating business and increases in revenue from our family entertainment business. Any forward-looking statements contained in this press release represent our estimates, expectations or intentions only as of the date hereof, or as of such earlier dates as are indicated, and should not be relied upon as representing our views as of any subsequent date. These statements involve a number of risks and uncertainties, including, but not limited to, expectations of the economic environment; material adverse changes in economic conditions in the markets we serve and in the general economy; future regulatory actions and conditions in the states in which we conduct our business; pricing and other payment decisions and policies of the carriers in our insurance distribution business, weather and environmental conditions in the areas served by our earth moving and excavation business, the integration of our operations with those of businesses or assets we have acquired or may acquire in the future and the failure to realize the expected benefits of such acquisition and integration. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so.
| Consolidated Statement of Operations | |||||||||||||||||||||
| Quarter Ended | Year to Date | ||||||||||||||||||||
| 3 Months Ended | 6 Months Ended | ||||||||||||||||||||
| 9/30/2016 | 9/30/2015 | 9/30/2016 | 9/30/2015 | ||||||||||||||||||
| Commission revenue | $ | 4,789,121 | $ | 5,566,921 | $ | 9,605,361 | $ | 11,291,464 | |||||||||||||
| Construction revenue | 46,219 | 513,617 | 182,220 | 812,827 | |||||||||||||||||
| Family entertainment revenue | 1,345,435 | 843,773 | 2,622,863 | 1,560,274 | |||||||||||||||||
| Other operating income | $ | 60,058 | $ | 24,950 | $ | 102,058 | $ | 29,850 | |||||||||||||
| Revenues | 6,240,833 | 6,949,261 | 12,512,502 | 13,694,415 | |||||||||||||||||
| Distributor Related Expenses | |||||||||||||||||||||
| Bonus & commissions | 3,512,182 | 3,998,331 | 6,828,242 | 8,218,113 | |||||||||||||||||
| Processing & distribution | 328,532 | 381,367 | 688,270 | 819,410 | |||||||||||||||||
| Depreciation | 2,829 | 2,725 | 5,455 | 5,465 | |||||||||||||||||
| Total | 3,843,543 | 4,382,423 | 7,521,967 | 9,042,988 | |||||||||||||||||
| Cost of Construction | |||||||||||||||||||||
| Direct and Indirect costs of construction | 101,037 | 307,706 | 179,331 | 502,623 | |||||||||||||||||
| Depreciation | 36,988 | 87,578 | 121,285 | 174,982 | |||||||||||||||||
| Total | 138,025 | 395,284 | 300,616 | 677,605 | |||||||||||||||||
| Family entertainment cost of sales | 340,493 | 226,629 | 636,684 | 421,715 | |||||||||||||||||
| Net Operating Revenue | 1,918,772 | 1,944,925 | 4,053,235 | 3,552,107 | |||||||||||||||||
| Operating Expenses | 2,293,553 | 1,946,132 | 4,585,395 | 3,629,574 | |||||||||||||||||
| Operating loss | (374,781 | ) | (1,207 | ) | (532,160 | ) | (77,467 | ) | |||||||||||||
| Other Income (Expense) | |||||||||||||||||||||
| Investment gain, (loss) net | 316,853 | (649,086 | ) | 592,173 | (643,602 | ) | |||||||||||||||
| Interest expense | (50,785 | ) | (60,095 | ) | (103,557 | ) | (91,536 | ) | |||||||||||||
| Other income | - | 20,000 | - | 20,000 | |||||||||||||||||
| Swap settlement (expense) income | (13,547 | ) | 9,318 | (28,319 | ) | 6,098 | |||||||||||||||
| Interest rate swap, fair value adjustment | 31,055 | (174 | ) | 9,543 | 1,806 | ||||||||||||||||
| Income (Loss) Before Provision for Income Tax | (91,205 | ) | (681,244 | ) | (62,320 | ) | (784,701 | ) | |||||||||||||
| Income tax (benefit) expense | (31,523 | ) | (258,147 | ) | (21,636 | ) | (301,185 | ) | |||||||||||||
| Net Income (loss) | $ | (59,682 | ) | $ | (423,097 | ) | $ | (40,684 | ) | $ | (483,516 | ) | |||||||||
| Average Shares Outstanding | 7,028,233 | 7,028,233 | 7,028,233 | 7,028,233 | |||||||||||||||||
| Operating Income per Share | $ | (0.05 | ) | $ | 0.00 | $ | (0.08 | ) | $ | (0.01 | ) | ||||||||||
| Net Income per Share | $ | (0.01 | ) | $ | (0.06 | ) | $ | (0.01 | ) | $ | (0.07 | ) | |||||||||
Note: * - Operating EPS and Net EPS stated after giving effect to 7:6 stock split for shareholders of record as of August 21, 2015 and paid September 25, 2015 for all periods. Shares outstanding increased to 7,028,233 from 6,024,200 with this stock split and have been retroactively adjusted to account for the split.
| Consolidated Selected Balance Sheet Items | |||||||||
| As of | |||||||||
| Assets | 9/30/16 | 3/31/16 | |||||||
| Cash & Equivalents | $ | 5,282,539 | $ | 5,535,256 | |||||
| Investments | 6,663,612 | 5,802,222 | |||||||
| Receivables | 7,568,840 | 8,387,938 | |||||||
| Other | 1,335,537 | 1,325,135 | |||||||
| Total Current Assets | 20,850,528 | 21,050,551 | |||||||
| Property and Equipment, Net | 2,807,513 | 3,088,588 | |||||||
| Intangible Assets, net | 1,399,655 | 1,502,004 | |||||||
| Other | 929,944 | 978,783 | |||||||
|
Total Non-Current Assets |
5,137,112 | 5,569,375 | |||||||
| Total Assets | $ | 25,987,640 | $ | 26,619,926 | |||||
| Liabilities & Stockholders' Equity | |||||||||
| Total Current Liabilities | $ | 9,765,376 | $ | 10,561,554 | |||||
| Long Term Liabilities |
4,847,962 |
4,643,386 |
|||||||
| Total Liabilities | 14,613,338 | 15,204,940 | |||||||
| Stockholders' Equity | 11,374,302 | 11,414,986 | |||||||
| Liabilities & Stockholders' Equity | $ | 25,987,640 | $ | 26,619,926 | |||||
Note – Operating EBITDA (excluding investment portfolio income)
Fiscal year 2016 second quarter operating EBITDA (excluding investment portfolio income) was determined by adding fiscal year 2016 second quarter operating income (loss) of ($374,781) and depreciation and amortization expense of $246,759 for a sum of ($128,022). Fiscal year 2015 second quarter operating EBITDA (excluding investment portfolio income) was determined by adding fiscal year 2015 second quarter operating loss of ($1,207) and depreciation and amortization expense of $206,918 for a sum of $205,711.
Fiscal year 2016 six months operating EBITDA (excluding investment portfolio income) was determined by adding fiscal year 2016 six month operating income (loss) of ($532,160) and depreciation and amortization expense of $538,019 for a sum of $5,859. Fiscal year 2015 six months operating EBITDA (excluding investment portfolio income) was determined by adding fiscal year 2015 six month operating loss of ($77,467) and depreciation and amortization expense of $400,191 for a sum of $322,724. The Company elects not to include investment portfolio income because the Company believes it is non-operating in nature.
The Company uses Operating EBITDA as a measure of operating performance. However, Operating EBITDA is not a recognized measurement under U.S. generally accepted accounting principles, or GAAP, and when analyzing its operating performance, investors should use Operating EBITDA in addition to, and not as an alternative for, income as determined in accordance with GAAP. Because not all companies use identical calculations, its presentation of Operating EBITDA may not be comparable to similarly titled measures of other companies and is therefore limited as a comparative measure. Furthermore, as an analytical tool, Operating EBITDA has additional limitations, including that (a) it is not intended to be a measure of free cash flow, as it does not consider certain cash requirements such as tax payments; (b) it does not reflect changes in, or cash requirements for, its working capital needs; and (c) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and Operating EBITDA does not reflect any cash requirements for such replacements, or future requirements for capital expenditures or contractual commitments. To compensate for these limitations, the Company evaluates its profitability by considering the economic effect of the excluded expense items independently as well as in connection with its analysis of cash flows from operations and through the use of other financial measures.
The Company believes Operating EBITDA is useful to an investor in evaluating its operating performance because it is widely used to measure a company’s operating performance without regard to certain non-cash or unrealized expenses (such as depreciation and amortization) and expenses that are not reflective of its core operating results over time. The Company believes Operating EBITDA presents a meaningful measure of corporate performance exclusive of its capital structure, the method by which assets were acquired and non-cash charges, and provides additional useful information to measure performance on a consistent basis, particularly with respect to changes in performance from period to period.
