The Marketing Alliance Announces Financial Results for Its Fiscal 2017 First Quarter Ended June 30, 2016

FY 2017 First Quarter Financial Highlights (all comparisons to the prior year period)

  • Revenues were $6,271,669 compared to $6,745,154;
  • Net operating revenues increased to $2,134,463, compared to $1,607,182;
  • Operating EBITDA (excluding investment portfolio income) was $133,881, as compared to $117,013; and
  • Net income increased to $18,998, or $0.00 per share, compared to a net loss of $60,419, or a net loss of $0.01 per share.

ST. LOUIS--()--The Marketing Alliance, Inc. (OTC:MAAL) (“TMA”), today announced financial results for its fiscal 2017 first quarter ended June 30, 2016.

Mr. Timothy M. Klusas, TMA’s Chief Executive Officer, stated, “We were pleased with the increases in net income and EBITDA reported over the prior year. Although we experienced decreases in construction and commission revenue, we were pleased with the performance of our insurance and family entertainment businesses, and remain focused on the fiscal year ahead. Similar to previous communications, we encourage investors to look at our business in no less than four-quarter increments due to the uneven timing of revenues in the insurance business and the seasonality of the land improvement and family entertainment businesses.

Insurance Distribution business: “Despite the decrease in commission revenue, we were pleased overall with our insurance business. We anticipated a decrease in revenue as a potential outcome of the volatility in product offerings among our insurance carriers. As we mentioned in previous communications, when a major historical supplier like Genworth announces that it will cease to sell new life insurance and annuity policies as it did in February, there is dislocation in the marketplace as our distributors seek to find new suppliers to serve their clients and agents. While we were able to help our distributors adjust to most of the turbulence in the life and annuity business, we had a broad and well-entrenched historical relationship with Genworth that takes time to recreate with other carriers. We have proactively adjusted our deferred first year commission estimates for Genworth as we believe this future business should decline as new policies (and future commissions) are not generated due to no new sales at Genworth. The net effect of this adjustment is a decrease of approximately $30,000 each month of gross profit. Another detractor to our performance was declining sales in long-term care insurance as this product line has seen in-force premium rate increases, which we understand has reduced the attractiveness of the product for a consumer seeking long-term guaranteed pricing. While we continue to learn more about potential changes in our annuity and life business due to the public announcement of the Department of Labor fiduciary standard regulations, some of the revenue from these products may become uneven. For this reason, we again have encouraged investors to consider our performance in no less than four-quarter increments.

“During the previous quarter, we initiated new carrier relationships with John Hancock Life Insurance Company and One America and anticipated the decrease in our new insurance sales as our distributors adjust their sales efforts and become acclimated with new carriers and life insurance product offerings. We are focused on offering our customers a wide variety of products from a diverse network of carriers and believe that in doing so our distributors are better able to adapt to changes in carriers and product mix to remain competitive in this environment.”

Earth Moving (Land Improvement) business: “General industry weakness continues as low crop and energy prices resulted in a decline in land improvement revenue for the Company for the quarter. We continue to adapt to the lower crop prices by exploring ways to thrive in this environment, utilizing the Company’s resources with commercial construction customers. We have many projects we believe were agreed upon and booked, however, these have been deferred and not been given the final approval to proceed, or scheduled into the fall. We have been even more disciplined about our costs, and are committed to pursuing revenue opportunities that best suit the business for long-term success, even if it is different from the company’s historical base in agriculture."

Family Entertainment business: “In April 2016, at the beginning of the first quarter, we opened our ninth and newest Monkey Joe franchised-location. We continued to reinvest in this business with improvements at these facilities, and as we continue to integrate these franchises into our operations we believe we will achieve economies of scale by leveraging our existing management across several locations. We have now shifted our energies from opening new locations to greater emphasis on execution. Our execution includes attempting to grow revenue at each location (after reinvesting in the facility and equipment), and focus on cutting costs through better relationships with vendors, improved inventory management and increased control of labor costs.”

Fiscal 2017 First Quarter Financial Review

  • Total revenues for the three-month period ended June 30, 2016, were $6,271,669, as compared to $6,745,154 in the prior year quarter. The decrease in total revenue was attributable to declines in revenue for the Company’s insurance and land improvement businesses, which were offset by an increase in family entertainment revenue over the prior year quarter.
  • Net operating revenue (gross profit) increased 32% for the quarter to $2,134,463 compared to net operating revenue of $1,607,182 in the prior-year fiscal period. The increase in net operating revenues for the quarter was due to the addition of four family entertainment franchises owned by the Company when compared to the prior year period, and offsetting decreases in insurance revenue and distributor bonuses and commissions (expense) as well as reduced construction revenue for the three-month period.
  • Operating loss for the fiscal 2017 first quarter was $157,379, compared to an operating loss of $76,260 reported in the prior-year period, due to an increase in general and administrative expenses due mostly 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 $133,881, as compared to $117,013 in the prior-year period. A note reconciling operating EBITDA to operating income can be found at the end of this release. Operating EBITDA was impacted by increases in depreciation and amortization expenses as compared to the prior year.
  • Net income for the fiscal 2017 first quarter was $18,998, or $0.00 per share, as compared to a net loss of $60,419, or a net loss of $0.01 per share for the prior year period. Net Income was positively impacted by an Investment gain of $275,320 for the quarter as compared to an investment gain of $5,484 for the prior year period.

Balance Sheet Information

  • TMA’s balance sheet at June 30, 2016 reflected cash and cash equivalents of approximately $5.8 million, working capital of $10.9 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 Statements

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, as well as our deferred first year commission estimates for Genworth and other carriers, 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, our ability to offer desirable new products to our distributors and the ability of our distributors to adapt to changes in carriers and product mix; economic, 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
June 30,
2016     2015  
Commission revenue $ 4,816,240 $ 5,724,543
Construction revenue 136,001 299,210
Family entertainment revenue 1,277,428 716,501
Other Revenue $ 42,000   $ 4,900  
Revenues 6,271,669 6,745,154
 
Distributor Related Expenses
Bonus & commissions 3,316,060 4,219,782
Processing & distribution 359,738 438,043
Depreciation   2,626     2,740  
Total 3,678,424 4,660,565
 
Cost of Construction
Direct and Indirect costs of construction 78,294 194,917
Depreciation   84,297     87,404  
Total 162,591 282,321
 
Family entertainment cost of sales   296,191     195,086  
 
Net Operating Revenue   2,134,463     1,607,182  
 
Operating Expenses   2,291,842     1,683,442  
 
Operating Income (Loss) (157,379 ) (76,260 )
 
Other Income (Expense)
Investment gain, (loss) net 275,320 5,484
Interest expense (52,772 ) (31,441 )
Swap settlement expense (14,772 ) (3,220 )
Interest rate swap, fair value adjustment   (21,512 )   1,980  
 
Income Before Provision for Income Tax 28,885 (103,457 )
 
Provision for income taxes   9,887     (43,038 )
 
Net Income (Loss) $ 18,998   $ (60,419 )
 
Average Shares Outstanding 7,028,233 7,028,233
 
Operating Income (Loss) per Share $ (0.02 ) $ (0.01 )
Net Income (Loss) per Share $ 0.00 $ (0.01 )

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 6/30/16   3/31/16
Cash & Equivalents $ 5,786,592 $ 5,535,256
Investments 6,041,042 5,802,222
Receivables 7,758,435 8,387,938
Other   1,274,842   1,325,135
Total Current Assets 20,860,911 21,050,551
 
Property and Equipment, Net 2,983,203 3,088,588
Intangible Assets, net 1,450,829 1,502,004
Other   968,501   978,783

Total Non Current Assets

  5,402,533   5,569,375
 
Total Assets $ 26,263,444 $ 26,619,926
 
Liabilities & Stockholders' Equity
Total Current Liabilities $ 9,969,482 $ 10,561,554
Long Term Liabilities  

4,859,978

 

4,643,386

 
Total Liabilities   14,829,460   15,204,940
 
Stockholders' Equity   11,433,984   11,414,986
 
Liabilities & Stockholders' Equity $ 26,263,444 $ 26,619,926
 

Note – Operating EBITDA (excluding investment portfolio income)

Q1FY2017 Operating EBITDA (excluding investment portfolio income) was determined by adding Q1FY 2017 Operating Loss of ($157,379) and Depreciation and Amortization Expense of $291,260 for a total of $133,881. Q1FY2016 Operating EBITDA (excluding investment portfolio income) was determined by adding Q1FY 2016 Operating Loss of ($76,260) and Depreciation and Amortization Expense of $193,273 for a total of $117,013. 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.

Contacts

The Marketing Alliance, Inc.
Timothy M. Klusas, 314-275-8713
President
tklusas@themarketingalliance.com
www.themarketingalliance.com
or
Investor Relations
The Equity Group Inc.
Adam Prior, 212-836-9606
Senior Vice President
aprior@equityny.com
or
Terry Downs, 212-836-9615
Associate
tdowns@equityny.com

Contacts

The Marketing Alliance, Inc.
Timothy M. Klusas, 314-275-8713
President
tklusas@themarketingalliance.com
www.themarketingalliance.com
or
Investor Relations
The Equity Group Inc.
Adam Prior, 212-836-9606
Senior Vice President
aprior@equityny.com
or
Terry Downs, 212-836-9615
Associate
tdowns@equityny.com