The Marketing Alliance Announces Financial Results for Its Fiscal 2014 Fourth Quarter and Year Ended March 31, 2014
FY 2014 Annual Financial Highlights (all comparisons to the prior year)
- Revenues were $24,267,078, compared to $30,973,626
- Operating income was $360,808, compared to $4,311,332
- Operating EBITDA (excluding investment portfolio income) was $997,549, compared to $4,863,317
- Net income of $597,557, or $0.10 per share, as compared to net income of $2,915,706, or $0.48 per share
- Shareholders’ equity decreased 3.7% to $12,806,226
FY 2014 Fourth Quarter Financial Highlights (all comparisons to the prior year period)
- Revenues were $4,147,077, compared to $9,020,525
- Operating loss was $616,831, compared to operating income of $2,149,343
- Operating EBITDA (excluding investment portfolio income) was ($457,722), compared to $2,301,421
- Net loss of $132,407, or $0.02 per share, as compared to net income of $1,483,139, or $0.25 per share
ST. LOUIS--(BUSINESS WIRE)--The Marketing Alliance, Inc. (OTC:MAAL) (“TMA”) today announced financial results for its fiscal 2014 fourth quarter and year ended March 31, 2014.
Mr. Timothy M. Klusas, TMA’s Chief Executive Officer, stated, “Our business was affected by several external factors that negatively impacted operations during the year. These factors generated headwinds for revenue growth in our insurance distribution business and also in our earth moving and excavation business. Because our insurance distribution business requires annual reconciliations of deferred first-year commissions, and these reconciliations occur during our fiscal fourth quarter, the completion of these calculations affects quarterly results although they were likely the result of business conditions that extended beyond the quarter or even our fiscal year. Accordingly, we encourage followers of our Company to consider 12-month periods more heavily than individual quarters. Despite our businesses not meeting expectations this year, we remain focused on generating operating profits in each of our businesses, while seeking additional methods of utilizing the capital on our balance sheet to produce favorable returns for shareholders.
Insurance Distribution Business: “We continued to work closely with our distributors and carriers during what has been a difficult time for the life insurance business. The prolonged low interest rate environment and industry changes have affected our business through supplier dislocations, product discontinuance and in-force 'repricings,' and anecdotally, general distraction as agents had less time to develop life insurance sales given other demands from their customers for other lines of insurance, such as health care.
“It typically takes TMA at least three years to bring on and establish a new supplier (carrier) relationship. Additionally, many of TMA’s carrier relationships have been fostered and built over many years. When a carrier finds itself having to change the focus of its products due to external changes such as reserving rules, capital constraints or interest rate projections, TMA must adjust to that carrier’s product changes to maintain the value in that relationship or find new carriers to fill that void. This causes inefficiencies in the short term (time required to establish new relationships) until suitable replacements can be found, as TMA and its distributors discern and communicate the attributes of that carrier and its products to its distribution network to build mutually lucrative relationships. While TMA had been able to largely offset the decline in existing relationships with the onset of new relationships, the rate of decline of shrinking relationships exceeded the rate of growth of new ones. We will continue to focus on reversing this trend.
“Product repricings contributed to volatility in product pricing, which we feel caused consumers to delay purchases. The most prominent example this year was in our long-term care insurance sales, where many carriers have exited the business altogether and the remaining ones requested premium rate increases to products already in force for consumers to continue to retain the same benefits. While many customers did not allow their policies to lapse, these increases contributed to uncertainty about the product, which we feel caused consumers to wait for more clarity with the product’s outlook. Other repricings involved products with long-term guarantees, where prolonged low interest rates and changes in reserving requirements caused carriers to discontinue this product or raise prices; repricings also had the effect of increasing product sales prior to changes that became effective at the end of 2012, leaving our sales pipeline less robust. In the midst of these headwinds and changes, the flurry of new rules and updates regarding other insurance products that TMA does not currently sell caused some of our agents to divert their attention away from developing life insurance sales. Finally, as a result of a change in product mix from a number of TMA’s long-term carriers, many distributors needed to adjust the product offering to their individual customers. We were pleased that many of our member agencies have successfully begun to sell these new products, but the initial effects of the change in carrier product mix resulted in reduced product sales, which were reflected in our most recent financial results.
Earth moving and excavation business: “This quarter, as we discussed in past announcements, unusual weather patterns delayed the installation of our tiling and terracing products. We were not able to begin operations until later in the spring, which suppressed revenues in the fiscal fourth quarter. In addition, many of our agricultural customers deferred installation decisions due to lower corn and soybean prices, which weigh heavily on agricultural customers’ main source of revenue to support our services. While these delays resulted in lower sales during the period, we feel that our value proposition to these farmers remains sound, as our excavation business provides opportunities to increase crop yields and land utilization. Given the outlook for crop prices, we have been attempting to reduce the fixed costs of our business to enable more flexible operations to respond to changing conditions.
Monkey Joe’s Facilities: “The Company made a number of investments during the year into its Monkey Joe’s franchises, including purchases of video games and other accessories that we feel will help to increase sales at these locations. We have been pleased with the results of these two facilities and expect to further develop this business in the year ahead.”
Fiscal 2014 Fourth Quarter Financial Review
- Total revenues for the three-month period ended March 31, 2014, were $4,147,077, as compared to $9,020,525 in the prior year quarter. In addition to the factors discussed above, revenue in the quarter was affected by an annual deferred first-year commissions calculation that occurred in the quarter. Deferred first-year commissions are revenue the Company expects to receive in the subsequent twelve months after a policy was put in force. This measure captures a revenue stream that is expected to extend past the end of the fiscal year. This situation occurs because some carriers only pay commissions once they receive monthly premiums from the insured. The calculation decreased revenue in the quarter by approximately $1.4 million relative to the prior year period. The reduction is due to the revenue TMA expects from policies in force during their first year is less than in the prior year period. In the prior year quarter, revenue increased by approximately $2.6 million because TMA expected revenue from policies in force during their first year was more than the previous year, due to the number new carrier relationships in the previous year. Revenue for the quarter in the earth moving and excavation business was also affected by adverse weather.
- Net operating revenue (gross profit) for the quarter was $932,331, compared to net operating revenue of $3,557,348 in the prior-year fiscal period. This was due to the effects on revenue (above) and increased costs relating to benefits for distributors in the insurance business. Last year our accrual was more than we realized, resulting in a low expense in the quarter whereas this year the cost was more than we anticipated, leading to additional costs in the quarter.
- Operating loss was $616,831, versus operating income of $2,149,343 reported in the prior-year period. The operating loss was caused by the factors above and certain one-time expenses included in Operating Expenses, which exceed the amount of the prior year period by $149,157. A large effect on Operating Income versus the prior year period was due to the deferred first year commission calculation that was completed in the quarter. This measure caused a loss of approximately $600,000 in this year’s fiscal fourth quarter whereas in the previous year, this calculation added approximately $1.4 million to operating profit in the fiscal fourth quarter, for a net difference of approximately $2.0 million in this year’s fiscal fourth quarter versus the prior year period.
- Operating EBITDA (excluding investment portfolio income) for the quarter was ($457,722), as compared to $2,301,421 in the prior-year period. A note reconciling operating EBITDA to operating income can be found at the end of this release.
- Net loss for the fiscal 2014 fourth quarter was $132,407, or a loss per share of $0.02, compared to a net income of $1,483,139, or $0.25 per share, in the prior year period.
Fiscal 2014 Financial Review
- Total revenues for the year ended March 31, 2014 decreased to $24,267,078, as compared to $30,973,626 in revenues for the prior-year period. The decrease was caused by the factors mentioned above.
- Net operating revenue (gross profit) was $6,538,268, which compares to a net operating revenue of $9,331,885 in the prior-year fiscal period.
- Operating income decreased to $360,808 from $4,311,332 for the prior-year period, primarily due to decreases in revenue and increases in costs relative to revenue caused by unfavorable conditions in the insurance distribution business.
- Operating EBITDA (excluding investment portfolio income) for the year ended March 31, 2014 was $997,549 versus $4,863,317 in the prior-year period. A note reconciling operating EBITDA to operating income can be found at the end of this release.
- Net income for the year ended March 31, 2014 decreased to $597,557, or $0.10 per share, compared to $2,915,706, or $0.48 per share, in the prior-year period.
- Purchases of property and equipment were $396,002 for the fiscal year (not including proceeds from sales of equipment in the earth moving and excavation business). The family entertainment business accounted for 78% of purchases, the insurance business accounted for 16% of purchases, and the balance in the earth moving and exaction business.
Balance Sheet Information
TMA’s balance sheet at March 31, 2014 reflected cash and cash equivalents of approximately $5.5 million, working capital of $11.3 million, and shareholders’ equity of $12.8 million compared to $6.0 million, $12.7 million, and $13.3 million, respectively, at March 31, 2013.
About The Marketing Alliance, Inc.
Headquartered in St. Louis, MO, TMA operates three business segments. 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 two 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 2015 and the production of favorable returns to shareholders, our intent to focus on increasing the rate of growth of new relationships with carriers, our attempts to reduce fixed costs of our earth moving and excavation business and our expected revenues from policies in force. Any forward-looking statements contained in this press release represent our estimates only as of the date hereof, or as of such earlier dates as are indicated, and should not be relied upon as representing our estimates 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; 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||12 Months Ended|
|Family entertainment revenue||$||521,531||$||442,322||1,504,493||802,819|
|Distributor Related Expenses|
|Bonus & commissions||2,178,411||4,927,548||13,858,842||17,291,537|
|Processing & distribution||655,809||57,880||1,812,572||1,720,707|
|Cost of Construction|
|Direct and Indirect costs of construction||200,253||322,828||1,427,285||2,143,600|
|Family entertainment cost of sales||90,903||67,332||266,164||114,647|
|Net Operating Revenue||932,331||3,557,348||6,538,268||9,331,885|
|Operating Income (Loss)||(616,831||)||2,149,343||360,808||4,311,332|
|Other Income (Expense)|
|Investment gain, (loss) net||306,840||327,282||563,895||475,796|
|Interest rate swap, fair value adjustment||2,595||(35,921||)||22,165||(35,921||)|
|Gain (Loss) on disposal||(2,216||)||(1,661||)||5,980||(1,661||)|
|Income (Loss) Before Provision for Income Tax||(342,321||)||2,416,611||839,744||4,647,995|
|Provision for income taxes||(209,914||)||933,472||242,187||1,732,289|
|Net Income (Loss)||$||(132,407||)||$||1,483,139||$||597,557||$||2,915,706|
|Average Shares Outstanding||6,024,200||6,024,200||6,024,200||6,024,200|
|Operating Income (Loss) per Share||$||(0.10||)||$||0.36||$||0.06||$||0.72|
|Net Income (Loss) per Share||$||(0.02||)||$||0.25||$||0.10||$||0.48|
Note: * - Operating EPS and Net EPS stated after giving effect to a 2:1 stock split for shareholders of record as of February 28, 2014 and was distributed on or about March 28, 2014. Shares outstanding increased to 6,024,200 from 3,012,100 with this stock split and have been retroactively adjusted to account for the split.
|Consolidated Selected Balance Sheet Items|
|Cash & Equivalents||$||5,531,060||$||6,007,286|
|Total Current Assets||20,283,575||20,117,503|
|Property and Equipment, Net||1,490,381||1,652,031|
|Intangible Assets, net||835,290||960,899|
Total Non Current Assets
|Liabilities & Stockholders' Equity|
|Total Current Liabilities||$||8,993,130||$||7,463,975|
|Long Term Liabilities||
|Liabilities & Stockholders' Equity||$||23,529,812||$||23,532,009|
Note – Operating EBITDA (excluding investment portfolio income)
Q4FY2014 Operating EBITDA (excluding investment portfolio income) was determined by adding Q4FY 2014 Operating Income of ($616,831) and Depreciation and Amortization Expense of $159,109 for a total of ($457,722). Q4FY2013 Operating EBITDA (excluding investment portfolio income) was determined by adding Q4FY 2013 Operating Income of $2,149,343 and Depreciation and Amortization Expense of $152,078 for a sum of $2,301,421. The Company elects not to include investment portfolio income because the Company believes it is non-operating in nature.
Fiscal 2014 year-end Operating EBITDA (excluding investment portfolio income) was determined by adding FY2014 year-end Operating Income of $360,808 and Depreciation and Amortization Expense of $636,741 for a sum of $997,549. FY2013 year-end Operating EBITDA (excluding investment portfolio income) was determined by adding FY 2013 year-end Operating Income of $4,311,332 and Depreciation and Amortization Expense of $551,985 for a sum of $4,863,317. 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.