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The Marketing Alliance Announces Financial Results for Its Fiscal 2017 Third Quarter and Nine Months Ended December 31, 2016

ST. LOUIS–(BUSINESS WIRE)–The Marketing Alliance, Inc. (OTC:MAAL) (“TMA”), today announcedfinancial results for its fiscal 2017 third quarter and nine monthsended December 31, 2016.

Timothy M. Klusas, TMA’s Chief Executive Officer, commented, “Despitelower sales, we were able to exceed operating income this quarter versusthe same quarter last year by reducing our operating expenses. Whencombined with other non-operating income such as investments, our netincome exceeded the same quarter last year.

“Although our insurance distribution business was again affected by thechanges in the product portfolios and relative competitiveness ofinsurance carriers, our distributors were able to adjust to losing theability to sell products from carriers such as Genworth and guide theirproducers to some of our newer carrier relationships such as JohnHancock and One America. We have seen some progress in growth with newercarrier relationships and want to again call attention to theoutstanding job of managing through these changes exhibited by ourdistributors. We believe uncertainty regarding the regulatory rulings,such as the Department of Labor’s Fiduciary Rule, also impacted salesnegatively as well as a general industry reduction in the sales oflong-term care products. As we have previously stated, we haveproactively adjusted our deferred first year commission estimates forGenworth as this future business will decline as new policies (andfuture commissions) are not generated due to Genworth’s announcementlast March to cease all new life insurance and annuity product sales.Also as previously mentioned, the net effect of this adjustment isdecreases each month of approximately $30,000 of gross profit, orapproximately $90,000 this quarter and $270,000 in the first nine monthsof this fiscal year, which are the net effect of adjustments to bothcommission revenues and bonus and commission expenses.

“While weakness and the cyclical nature (bottom of the cycle) of the endagricultural markets in the construction / land improvement businessaffected our ability to find and complete profitable projects, we wereable to reduce expenses (direct and indirect costs of construction anddepreciation) enough to improve our gross margin. While growth has beenchallenging during this prolonged period of falling sales, we have beenactively reducing expenses and positioning the company to pursueprojects in additional markets. We remain optimistic this effort willprove fruitful in future quarters through new projects and revenuesoutside of traditional farmers and crop yield-improving farmlandprojects, but in this quarter it resulted in us declining jobs for whichwe anticipated less than the desired levels of profitability.

“We have been pleased with the progress made over the past calendar yearin our family entertainment business. During the quarter, we continuedto invest in these centers and to make improvements at each locationwhile trying to better optimize the expense base. Of note, this quarteralso included a full quarter of the Matthews, NC, store (versus onemonth in the prior year period) and the new store in St. Louis, whichopened 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 theprior-year fiscal period. The decrease in total revenue wasattributable to a decreases in revenue for the Company’s insurance andland 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 yearquarter. Net operating revenue decreased for the quarter due toreduced revenues mentioned above.

Operating expenses decreased to $1,942,410 for the fiscal 2017 thirdquarter as compared to $2,146,264 for the prior year. A portion ofthis decrease was due to not having expenses associated with theacquisition of new family entertainment centers (as in the prior yearperiod) and some of the benefits of the company-wide cost-savingsinitiatives to reduce expenses. Of note, rent and occupancy expensesincreased 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 operatingincome for the fiscal 2017 third quarter was primarily attributable tothe aforementioned increase in family entertainment revenue anddecreases in operating expenses for the fiscal 2017 third quarter.

Operating EBITDA (excluding investment portfolio income) for thequarter was $434,135 compared to $442,522 in the prior-year period. Anote reconciling operating EBITDA to operating income can be found atthe end of this release.

Investment gain, net (from investment portfolio) for the third quarterended December 31, 2016 was $319,061, as compared to $194,305, for thesame quarter of the previous fiscal year.

Net income for the fiscal 2017 third quarter was $357,388, or $0.05per share, as compared to a net income of $208,959, or $0.03 pershare, in the prior year period. The increase in net income wasprimarily the result of an increase in investment gain for thethree-month period ended December 31, 2016 and comparable levels ofoperating 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. Anincrease in family entertainment revenue for the nine-month periodover the same period of the prior year offset a portion of thedecreases in revenues generated from the Company’s insurancedistribution and land improvement businesses.

Net operating revenue (gross profit) was $6,205,709, which compares tonet operating revenue of $5,903,134 in the prior-year fiscal period.Increases in net operating revenue were attributable to a $1,134,364increase in revenue for the Company’s family entertainment businessand decreases in construction, business processing and distributorcosts.

Operating expenses increased by $751,967 for the first nine months ofthe 2017 fiscal year when compared to the prior year period due, inpart to increases in rent and occupancy expense (approximately$400,000) relating to the addition of new family entertainment centersas 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 ninemonths 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 monthswas $439,994, as compared to $765,246 in the prior-year period. A notereconciling Operating EBITDA to Operating Income can be found at theend of this release.

Investment gain, net (from investment portfolio) for the nine monthsended December 31, 2016 was $911,234, as compared to a net investmentloss of ($449,297), for the same nine months of the previous fiscalyear. Of the Investment gain, net for the nine months ending thisfiscal year, approximately $620,000 was unrealized, $218,000 wasrealized and the balance was interest and dividend income andinvestment management fees. For the prior year period net investmentloss of ($449,297), unrealized losses were approximately ($472,000)and realized losses were approximately ($53,000), and the balance wasinterest 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 incomewas greater in the prior year period, net income in the nine monthperiod ending December 31, 2016, was higher than the prior year perioddue to greater investment gain, net, in this year compared to aninvestment loss in the prior year period.

Balance Sheet Information

TMA’s balance sheet at December 31, 2016 reflected cash and cashequivalents of approximately $6.3 million, working capital of $11.2million, and shareholders’ equity of $11.7 million; compared to $5.5million, $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. TMAprovides support to independent insurance brokerage agencies, with agoal of providing members value-added services on a more efficient basisthan they can achieve individually. The Company also owns an earthmoving and excavating business and nine children’s play and partyfacilities. Investor information can be accessed through the shareholdersection 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 risksand uncertainties that may affect TMA’s business and prospects. Examplesof forward-looking statements include, among others, statements we makeregarding our expectations for our performance during fiscal 2017 andfuture periods and the production of favorable returns to shareholders,the effects of reconciliation of distributor commissions on ourexpenses, our ability to obtain new carriers and more economical andfaster ways for carrier products to be distributed, our ability todiversify our earth moving and excavating business and increases inrevenue from our family entertainment business. Any forward-lookingstatements contained in this press release represent our estimates,expectations or intentions only as of the date hereof, or as of suchearlier dates as are indicated, and should not be relied upon asrepresenting our views as of any subsequent date. These statementsinvolve a number of risks and uncertainties, including, but not limitedto, expectations of the economic environment; material adverse changesin economic conditions in the markets we serve and in the generaleconomy; future regulatory actions and conditions in the states in whichwe conduct our business; pricing and other payment decisions andpolicies of the carriers in our insurance distribution business, weatherand environmental conditions in the areas served by our earth moving andexcavation business, the integration of our operations with those ofbusinesses or assets we have acquired or may acquire in the future andthe failure to realize the expected benefits of such acquisition andintegration. While we may elect to update forward-looking statements atsome point in the future, we specifically disclaim any obligation to doso.

 

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 investmentportfolio income)

Fiscal year 2017 third quarter operating EBITDA (excluding investmentportfolio income) was determined by adding fiscal year 2017 thirdquarter operating income of $210,064 and depreciation and amortizationexpense of $224,071 for a sum of $434,135. Fiscal year 2016 thirdquarter operating EBITDA (excluding investment portfolio income) wasdetermined by adding fiscal year 2016 third quarter operating income of$204,763 and depreciation and amortization expense of $237,759 for a sumof $442,522. The Company elects not to include investment portfolioincome because the Company believes it is non-operating in nature.

Fiscal year 2017 nine months operating EBITDA (excluding investmentportfolio income) was determined by adding fiscal year 2017 nine monthoperating loss of ($322,096) and depreciation and amortization expenseof $762,090 for a sum of $439,994. Fiscal year 2016 nine monthsoperating EBITDA (excluding investment portfolio income) was determinedby adding fiscal year 2016 nine month operating income of $127,296 anddepreciation and amortization expense of $637,950 for a sum of $765,246.The Company elects not to include investment portfolio income becausethe 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 analyzingits operating performance, investors should use Operating EBITDA inaddition to, and not as an alternative for, income as determined inaccordance with GAAP. Because not all companies use identicalcalculations, its presentation of Operating EBITDA may not be comparableto similarly titled measures of other companies and is therefore limitedas a comparative measure. Furthermore, as an analytical tool, OperatingEBITDA has additional limitations, including that (a) it is not intendedto be a measure of free cash flow, as it does not consider certain cashrequirements such as tax payments; (b) it does not reflect changes in,or cash requirements for, its working capital needs; and (c) althoughdepreciation and amortization are non-cash charges, the assets beingdepreciated and amortized often will have to be replaced in the future,and Operating EBITDA does not reflect any cash requirements for suchreplacements, or future requirements for capital expenditures orcontractual commitments. To compensate for these limitations, theCompany evaluates its profitability by considering the economic effectof the excluded expense items independently as well as in connectionwith its analysis of cash flows from operations and through the use ofother financial measures.

The Company believes Operating EBITDA is useful to an investor inevaluating its operating performance because it is widely used tomeasure a company’s operating performance without regard to certainnon-cash or unrealized expenses (such as depreciation and amortization)and expenses that are not reflective of its core operating results overtime. The Company believes Operating EBITDA presents a meaningfulmeasure of corporate performance exclusive of its capital structure, themethod by which assets were acquired and non-cash charges, and providesadditional useful information to measure performance on a consistentbasis, particularly with respect to changes in performance from periodto period.

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