The Marketing Alliance Announces Financial Results for Its Fiscal 2018 Third Quarter and Nine Months Ended December 31, 2017

FY 2018 Third Quarter Financial Highlights (all comparisons to the prior year quarter)

  • Revenues were $7,555,686 compared to $6,784,366 due to increases in commission and construction revenue
  • Net operating revenue (gross profit) was $2,467,187 compared to $2,152,474
  • Operating income was $286,288 compared to $210,064
  • Operating EBITDA (excluding investment portfolio income) was $472,507 compared to $434,135
  • Net income was $604,726, or $0.08 per share, as compared to a net income of $357,388, or $0.04 per share, in the prior year period
  • The increase in net income was due to increases in total revenue, net operating revenue, operating income and a tax benefit of $335,015 as a result of The Tax Act (see below) from the re-measurement of deferred tax liabilities
  • During the quarter, the Company’s Board of Directors authorized a $0.23 per share cash dividend for shareholders of record on December 29, 2017, to be paid on or about January 31, 2018. The dividend represents the fourteenth year of consecutive increased cash disbursements paid to TMA’s shareholders

ST. LOUIS, Mo.--()--The Marketing Alliance, Inc. (OTC: MAAL) (“TMA”), today announced financial results for its fiscal 2018 third quarter and nine months ended December 31, 2017.

Timothy M. Klusas, TMA’s Chief Executive Officer, commented, “We were pleased with our results as the construction and insurance distribution businesses posted increased revenues in the quarter, and the family entertainment business had only a slight decrease in revenue for the three-month period. The increase in revenues for the insurance business was due in part to the continued adoption of digital applications by our distributors, as more agents began using the digital platform to submit applications. We also saw revenue growth through increased revenues with new carrier relationships such as Pacific Life, a relationship which we initiated last year. The increase in revenues, however, was partially offset by challenges in the annuity portion of insurance distribution business as the US Department of Labor Fiduciary Rule continued to cause uncertainty in the future distribution of annuities, which we felt depressed sales of annuities in the quarter and the calendar year. The end of the calendar year is significant this quarter since many annuity sales compensation programs are aligned with the calendar, so this quarter would have historically included normalized year end compensation payments to our company and distributors. Revenues increased in the construction business as this quarter included the completion of projects undertaken earlier in the year, especially in new areas for this business such as roadway construction, as opposed to being limited exclusively to agricultural projects as in prior years. Finally, in the family entertainment business we started to see some of the benefits of our new pricing this quarter, as the revenue deficit narrowed this quarter compared to previous ones earlier in the fiscal year.”

Fiscal 2018 Third Quarter Financial Review

  • Total revenues for the three-month period ended December 31, 2017, were $7,555,686 as compared to $6,784,366 in the prior year quarter. This was due to increases in commission and construction revenue for the period which offset a decrease in family entertainment revenue over the prior year period.
  • Net operating revenue (gross profit) for the quarter was $2,467,187 compared to net operating revenue of $2,152,474 in the prior-year fiscal period.
  • Operating expenses increased $238,489 to $2,180,899 for the fiscal 2018 third quarter as compared to the prior year, due in part to increases in compensation, travel and meetings, and rent and occupancy expenses. A portion of the increase in compensation expense was due to bringing certain functions, such as technology, in house.
  • Operating income improved to $286,288, compared to operating income of $210,064 reported in the prior-year period.
  • Operating EBITDA (excluding investment portfolio income) for the quarter was $472,507 compared to $434,135 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, 2017 was $147,245, as compared to $319,061, for the same quarter of the previous fiscal year.
  • Net income for the fiscal 2018 third quarter was $604,726, or $0.08 per share, as compared to a net income of $357,388, or $0.04 per share, in the prior year period. The increase in net income was due to increases in total revenue, net operating revenue, operating income and a $335,015 tax benefit as a result of The Tax Act (below).
  • The Tax Cuts and Jobs Act (“The Tax Act”) signed into law on December 22, 2017, changed many aspects of U.S. corporate income taxation and included the reduction of the corporate income tax rate from 35% to 21%, effective January 1, 2018. As a result of this change, the Company revalued its net deferred tax assets at December 31, 2017. For the fiscal year ended March 31, 2018, the Company anticipates a blended federal statutory tax of 30.75%. The Company recognized the tax effect of The Tax Act in the quarter ended December 31, 2017, and as a result, recorded $335,015 in tax benefits as it relates to the re-measurement of deferred tax assets and liabilities to the 21% tax rate.

Fiscal 2018 Nine Months Financial Review

  • Total revenues for the nine months ended December 31, 2017 were $22,672,932, compared to $19,495,066, for the prior-year period. The increase was due to gains in insurance distribution and construction revenue for the nine-month period.
  • Net operating revenue (gross profit) was $6,865,673, which compares to net operating revenue of $6,205,709 in the prior-year fiscal period.
  • Operating expenses for the first nine months of this fiscal year was $6,617,916 an increase of 1.3% as compared to the same nine-month period of the prior year.
  • The Company reported operating income of $247,757 for the nine months ended December 31, 2017, compared to an operating loss of ($322,096) for the prior-year period due to the factors discussed above.
  • Operating EBITDA (excluding investment revenue) for the nine months was $820,566 as compared to $439,994 for 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, 2017 was $695,375, as compared to $911,234, for the same period of the previous fiscal year.
  • Net income for the nine months ended December 31, 2017, was $838,600 or $0.10 per share, an increase of $521,896 when compared to a net income of $316,704, or $0.04 per share, for the prior-year period. The year over year increase was the result of an increase in total revenue and the above noted, recorded tax benefits.

Balance Sheet Information

  • TMA’s balance sheet at December 31, 2017 reflected cash and cash equivalents of approximately $5.5 million, working capital of $11.0 million, and shareholders’ equity of $11.6 million; compared to cash and cash equivalents of approximately $4.5 million, working capital of $10.4 million, and shareholders’ equity of $10.8 million, at March 31, 2017.

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 2018 and future periods and the production of favorable returns to shareholders, our ability to obtain industry acceptance and competitive advantages of a multi-carrier digital platform for life insurance applications, our expectations with respect to the distribution of new life insurance products, the effects of ongoing uncertainty regarding the Department of Labor’s Fiduciary Rule in our annuity business, our ability to diversify our earth moving and excavating business and our ability to increase revenue and reduce costs 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; our ability to work with carriers on marketing, distribution and product development; 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)
2017     2016 2017     2016
 
Commission revenue $ 6,018,161 $ 5,349,668 $ 18,198,362 $ 15,153,227
Construction revenue 354,091 130,084 896,959 312,304
Family entertainment revenue 1,113,434 1,208,438 3,396,070 3,831,301
Other operating income   70,000   96,176   181,541   198,234
Total revenues   7,555,686   6,784,366   22,672,932   19,495,066
 
Distributor related expenses:
Distributor bonuses and commissions 4,212,887 3,740,771 13,047,078 10,569,013
Business processing and distributor costs 367,384 451,574 1,209,042 1,338,042
Depreciation   2,046   2,593   6,136   8,048
  4,582,317   4,194,938   14,262,256   11,915,103
Costs of construction:
Direct and indirect costs of construction 181,767 103,749 575,970 283,080
Depreciation   9,144   15,268   28,286   136,553
  190,911   119,017   604,256   419,633
 
Family entertainment costs of sales:   315,271   317,937   940,747   954,621
 
 
Net operating revenue   2,467,187   2,152,474   6,865,673   6,205,709
 
Operating Expenses   2,180,899   1,942,410   6,617,916   6,527,805
 
Operating income (loss)   286,288   210,064   247,757   (322,096)
 
Other income (expense):
Investment (loss) gain, net 147,245 319,061 695,375 911,234
Interest expense (70,353) (62,009) (204,513) (165,566)
Loss on sale of assets - (12,523) (6,924) (12,523)
Swap settlement (expense) income (3,160) (12,022) (12,912) (40,341)
Interest rate swap, fair value adjustment   23,307   92,087   21,688   101,630
 
Income before provision for income taxes 383,327 534,658 740,471 472,338
 
Provision for income taxes (benefit)   (221,399)   177,270   (98,129)   155,634
 
Net income $ 604,726 $ 357,388 $ 838,600 $ 316,704
 
Average Shares Outstanding 8,032,266 8,032,266 8,032,266 8,032,266
 
Operating Income per Share $ 0.04 $ 0.03 $ 0.03 $ (0.04)
Net Income per Share $ 0.08 $ 0.04 $ 0.10 $ 0.04
 
Note: * - Operating EPS and Net EPS stated after giving effect to 8:7 stock split for shareholders of record as of August 25, 2017 and paid September 15, 2017 for all periods. Shares outstanding increased to 8,032,266 from 7,028,233 with this stock split and have been retroactively adjusted to account for the split.
 
 
Consolidated Selected Balance Sheet Items
     
As of
Assets 12/31/17     3/31/17
Cash & Equivalents $ 5,525,286 $ 4,538,393
Investments 8,480,616 7,719,319
Receivables 7,792,017 7,664,743
Other   778,117   1,230,189
Total Current Assets 22,576,036 21,152,644
 
Property and Equipment, Net 2,274,458 2,629,719
Intangible Assets, net 1,193,167 1,316,807
Other   888,007   807,273

Total Non Current Assets

  4,355,632   4,753,799
 
Total Assets $ 26,931,668 $ 25,906,443
 
Liabilities & Stockholders' Equity
Total Current Liabilities $ 11,588,511 $ 10,784,318
Long Term Liabilities  

3,713,198

 

4,330,766

 
Total Liabilities   15,301,709   15,115,084
 
Stockholders' Equity   11,629,959   10,791,359
 
Liabilities & Stockholders' Equity $ 26,931,668 $ 25,906,443
 

Note – Operating EBITDA (excluding investment portfolio income)

Fiscal year 2018 third quarter operating EBITDA (excluding investment portfolio income) was determined by adding fiscal year 2018 third quarter operating income of $286,288 and depreciation and amortization expense of $186,219 for a sum of $472,507. 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 2018 nine months operating EBITDA (excluding investment portfolio income) was determined by adding fiscal year 2018 nine-month operating income of $247,757 and depreciation and amortization expense of $572,809 for a sum of $820,566. Fiscal year 2017 nine months operating EBITDA (excluding investment portfolio income) was determined by adding fiscal year 2017 nine-month operating income (loss) of ($322,096) and depreciation and amortization expense of $762,090 for a sum of $439,994. 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
The Equity Group Inc.
Adam Prior, 212-836-9606
Senior Vice President
aprior@equityny.com
or
Terry Downs, 212-836-9615
Senior Associate
tdowns@equityny.com

Contacts

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