ST. LOUIS--(BUSINESS WIRE)--The Marketing Alliance, Inc. (OTC:MAAL) (“TMA”), today announced financial results for its fiscal 2017 third quarter and nine months ended December 31, 2016.
Timothy M. Klusas, TMA’s Chief Executive Officer, commented, “Despite lower sales, we were able to exceed operating income this quarter versus the same quarter last year by reducing our operating expenses. When combined with other non-operating income such as investments, our net income exceeded the same quarter last year.
“Although our insurance distribution business was again affected by the changes in the product portfolios and relative competitiveness of insurance carriers, our distributors were able to adjust to losing the ability to sell products from carriers such as Genworth and guide their producers to some of our newer carrier relationships such as John Hancock and One America. We have seen some progress in growth with newer carrier relationships and want to again call attention to the outstanding job of managing through these changes exhibited by our distributors. We believe uncertainty regarding the regulatory rulings, such as the Department of Labor’s Fiduciary Rule, also impacted sales negatively as well as a general industry reduction in the sales of long-term care products. As we have previously stated, we have 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 of gross profit, or approximately $90,000 this quarter and $270,000 in the first nine months of this fiscal year, which are the net effect of adjustments to both commission revenues and bonus and commission expenses.
“While weakness and the 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, we were able to reduce expenses (direct and indirect costs of construction and depreciation) enough to improve our gross margin. While growth has been challenging during this prolonged period of falling sales, we have been actively reducing expenses and positioning the company to pursue projects in additional markets. We remain optimistic this effort will prove fruitful in future quarters through new projects and revenues outside of traditional farmers and crop yield-improving farmland projects, but in this quarter it resulted in us declining jobs for which we anticipated less than the desired levels of profitability.
“We have been pleased with the progress made over the past calendar year in our family entertainment business. During the quarter, we continued to invest in these centers and to make improvements at each location while trying to better optimize the expense base. Of note, this quarter also included a full quarter of the Matthews, NC, store (versus one month in the prior year period) and the new store in St. Louis, which opened in April 2016.”
Fiscal 2016 Third Quarter Financial Review
- Total revenues for the three-month period ended December 31, 2016, were $6,691,701, compared to total revenue of $7,661,880 in the prior-year fiscal period. The decrease in total revenue was attributable to a decreases in revenue for the Company’s insurance and land improvement businesses.
- Net operating revenue (gross profit) for the quarter was $2,152,474, compared to net operating revenue of $2,351,027 in the prior year quarter. Net operating revenue decreased for the quarter due to reduced revenues mentioned above.
- Operating expenses decreased to $1,942,410 for the fiscal 2017 third quarter as compared to $2,146,264 for the prior year. A portion of this decrease was due to not having expenses associated with the acquisition of new family entertainment centers (as in the prior year period) and some of the benefits of the company-wide cost-savings initiatives to reduce expenses. Of note, rent and occupancy expenses increased with the addition of the two new centers mentioned above.
- Operating income was $210,064, compared to operating income of $204,763 reported in the prior-year period. The increase in operating income for the fiscal 2017 third quarter was primarily attributable to the aforementioned increase in family entertainment revenue and decreases in operating expenses for the fiscal 2017 third quarter.
- Operating EBITDA (excluding investment portfolio income) for the quarter was $434,135 compared to $442,522 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 third quarter ended December 31, 2016 was $319,061, as compared to $194,305, for the same quarter of the previous fiscal year.
- Net income for the fiscal 2017 third quarter was $357,388, or $0.05 per share, as compared to a net income of $208,959, or $0.03 per share, in the prior year period. The increase in net income was primarily the result of an increase in investment gain for the three-month period ended December 31, 2016 and comparable levels of operating profit.
Fiscal 2017 Nine Months Financial Review
- Total revenues for the nine months ended December 31, 2016 were $19,204,203, compared to $21,356,295 for the prior-year period. An increase in family entertainment revenue for the nine-month period over the same period of the prior year offset a portion of the decreases in revenues generated from the Company’s insurance distribution and land improvement businesses.
- Net operating revenue (gross profit) was $6,205,709, which compares to net operating revenue of $5,903,134 in the prior-year fiscal period. Increases in net operating revenue were attributable to a $1,134,364 increase in revenue for the Company’s family entertainment business and decreases in construction, business processing and distributor costs.
- Operating expenses increased by $751,967 for the first nine months of the 2017 fiscal year when compared to the prior year period due, in part to increases in rent and occupancy expense (approximately $400,000) relating to the addition of new family entertainment centers as well as increases in depreciation and amortization expenses (approximately $250,000) versus the prior year period.
- The Company reported an operating loss of ($322,096) for the nine months ended December 31, 2016 compared to an operating income of $127,296 for the prior-year period, due to the factors discussed above.
- Operating EBITDA (excluding investment revenue) for the nine months was $439,994, as compared to $765,246 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 nine months ended December 31, 2016 was $911,234, as compared to a net investment loss of ($449,297), for the same nine months of the previous fiscal year. Of the Investment gain, net for the nine months ending this fiscal year, approximately $620,000 was unrealized, $218,000 was realized and the balance was interest and dividend income and investment management fees. For the prior year period net investment loss of ($449,297), unrealized losses were approximately ($472,000) and realized losses were approximately ($53,000), and the balance was interest and dividend income and investment management fees.
- Net income for the nine months ended December 31, 2016 was $316,704, or $0.05 per share, compared to a net loss of ($274,557) loss, or ($0.04) per share, in the prior-year period. Although operating income was greater in the prior year period, net income in the nine month period ending December 31, 2016, was higher than the prior year period due to greater investment gain, net, in this year compared to an investment loss in the prior year period.
Balance Sheet Information
TMA’s balance sheet at December 31, 2016 reflected cash and cash equivalents of approximately $6.3 million, working capital of $11.2 million, and shareholders’ equity of $11.7 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 future periods 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 | |||||||||||
| Three-months ended | Nine-months ended | ||||||||||
| December 31, | December 31, | ||||||||||
| (Unaudited) | (Unaudited) | ||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||
| Commission revenue | $ | 5,257,003 | $ | 6,143,346 | $ | 14,862,364 | $ | 17,434,810 | |||
| Construction revenue | 130,084 | 344,371 | 312,304 | 1,157,198 | |||||||
| Family entertainment revenue | 1,208,438 | 1,136,663 | 3,831,301 | 2,696,937 | |||||||
| Other operating income | 96,176 | 37,500 | 198,234 | 67,350 | |||||||
| Total revenues | 6,691,701 | 7,661,880 | 19,204,203 | 21,356,295 | |||||||
| Distributor related expenses: | |||||||||||
| Distributor bonuses and commissions | 3,740,771 | 4,206,936 | 10,569,013 | 12,425,049 | |||||||
| Business processing and distributor costs | 358,909 | 377,385 | 1,047,179 | 1,196,795 | |||||||
| Depreciation | 2,593 | 2,733 | 8,048 | 8,198 | |||||||
| 4,102,273 | 4,587,054 | 11,624,240 | 13,630,042 | ||||||||
| Costs of construction: | |||||||||||
| Direct and indirect costs of construction | 103,749 | 291,097 | 283,080 | 793,720 | |||||||
| Depreciation | 15,268 | 87,699 | 136,553 | 262,681 | |||||||
| 119,017 | 378,796 | 419,633 | 1,056,401 | ||||||||
| Family entertainment costs of sales: | 317,937 | 345,003 | 954,621 | 766,718 | |||||||
| Net operating revenue | 2,152,474 | 2,351,027 | 6,205,709 | 5,903,134 | |||||||
| Operating Expenses | 1,942,410 | 2,146,264 | 6,527,805 | 5,775,838 | |||||||
| Operating income | 210,064 | 204,763 | (322,096) | 127,296 | |||||||
| Other income (expense): | |||||||||||
| Investment (loss) gain, net | 319,061 | 194,305 | 911,234 | (449,297) | |||||||
| Interest expense | (62,009) | (26,979) | (165,566) | (118,515) | |||||||
| (Loss) Gain on sale of assets | (12,523) | 23,537 | (12,523) | 23,537 | |||||||
| Swap settlement (expense) income | (12,022) | (26,506) | (40,341) | (20,408) | |||||||
| Interest rate swap, fair value adjustment | 92,087 | (27,414) | 101,630 | (25,608) | |||||||
| Other Income | - | - | - | 20,000 | |||||||
| Income (loss) before provision for income taxes | 534,658 | 341,706 | 472,338 | (442,995) | |||||||
| Provision for income taxes (benefit) | 177,270 | 132,747 | 155,634 | (168,438) | |||||||
| Net income | $ | 357,388 | $ | 208,959 | $ | 316,704 | $ | (274,557) | |||
| Average Shares Outstanding | 7,028,233 | 7,028,233 | 7,028,233 | 7,028,233 | |||||||
| Operating Income per Share | $ | 0.03 | $ | 0.03 | $ | (0.05) | $ | 0.02 | |||
| Net Income per Share | $ | 0.05 | $ | 0.03 | $ | 0.04 | $ | (0.04) | |||
| Consolidated Selected Balance Sheet Items | |||||||
| As of | |||||||
| Assets | 12/31/16 | 3/31/16 | |||||
| Cash & Equivalents | $ | 6,348,889 | $ | 5,535,256 | |||
| Investments | 6,841,572 | 5,802,222 | |||||
| Receivables | 7,659,455 | 8,387,938 | |||||
| Other | 1,256,843 | 1,325,135 | |||||
| Total Current Assets | 22,106,759 | 21,050,551 | |||||
| Property and Equipment, Net | 2,691,631 | 3,088,588 | |||||
| Intangible Assets, net | 1,348,479 | 1,502,004 | |||||
| Other | 883,970 | 978,783 | |||||
|
Total Non-Current Assets |
4,924,080 | 5,569,375 | |||||
| Total Assets | $ | 27,030,839 | $ | 26,619,926 | |||
| Liabilities & Stockholders' Equity | |||||||
| Total Current Liabilities | $ | 10,916,556 | $ | 10,561,554 | |||
| Long Term Liabilities |
4,382,593 |
4,643,386 |
|||||
| Total Liabilities | 15,299,149 | 15,204,940 | |||||
| Stockholders' Equity | 11,731,690 | 11,414,986 | |||||
| Liabilities & Stockholders' Equity | $ | 27,030,839 | $ | 26,619,926 | |||
Note – Operating EBITDA (excluding investment portfolio income)
Fiscal year 2017 third quarter operating EBITDA (excluding investment portfolio income) was determined by adding fiscal year 2017 third quarter operating income of $210,064 and depreciation and amortization expense of $224,071 for a sum of $434,135. Fiscal year 2016 third quarter operating EBITDA (excluding investment portfolio income) was determined by adding fiscal year 2016 third quarter operating income of $204,763 and depreciation and amortization expense of $237,759 for a sum of $442,522. The Company elects not to include investment portfolio income because the Company believes it is non-operating in nature.
Fiscal year 2017 nine months operating EBITDA (excluding investment portfolio income) was determined by adding fiscal year 2017 nine month operating loss of ($322,096) and depreciation and amortization expense of $762,090 for a sum of $439,994. Fiscal year 2016 nine months operating EBITDA (excluding investment portfolio income) was determined by adding fiscal year 2016 nine month operating income of $127,296 and depreciation and amortization expense of $637,950 for a sum of $765,246. 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.
