ST. LOUIS–(BUSINESS WIRE)–The Marketing Alliance, Inc. (OTC:MAAL) (“TMA”), today announced its fiscal 2017 fourth quarter and year ended March 31, 2017 financial results.
Timothy M. Klusas, TMA’s Chief Executive Officer, commented, “We were pleased with our financial performance during the quarter and fiscal year. We faced many external challenges, such as an insurance carrier ceasing sales of new life insurance and annuity policies and continuing weakness in agricultural end markets due to low crop prices that caused demand for our services to decline in the second half of the year. Despite these factors and increased operating expenses from a new family entertainment center, we were able to finish the fiscal year with an increase in net income versus the prior year.
“Commission revenue in our insurance distribution was affected by changes in carriers’ product portfolios, as carriers who have been historically significant to our distributors altered their products or even ceased selling new policies. For example, Genworth’s decision to discontinue the sale of new life insurance annuity policies in March 2016 caused us to proactively adjust our deferred first year commission estimates for Genworth during the fiscal 2017. For the twelve-month period, the impact to operating profit of this adjustment on commission revenues as well as distributor bonus and commission expenses was approximately $90,000 for each quarter and $360,000 for the 2017 fiscal year, as we have stated in prior quarters. As the fiscal year is now complete, these adjustments are complete as this is the end of our 2017 fourth quarter. While we have initiated new carrier relationships such as Pacific Life to attempt to provide additional product alternatives for our distributors and their producers, with any new carrier relationship there usually has been an adjustment period for our distributors as they realign their sales efforts and become informed concerning new product offerings. Despite the challenges of replacing a long-entrenched carrier relationship, we commend our general agents and their flexibility to support new offerings. We have continued to invest in our capabilities to offer a multi-carrier digital platform for life insurance applications, and continued to support this platform as a means to help our distributors grow by finding new producers and making their distribution operations more cost-efficient. Lastly, as we have mentioned in previous quarters, we continued to be negatively affected by the ongoing uncertainty regarding the Department of Labor’s Fiduciary Rule in our annuity business.
“While overall weakness in the agricultural markets and crop prices has affected our construction and land improvement business by reducing farmer’s demand for our services, we were still able to grow our revenue for the quarter and have actively worked to reduce expenses for the quarter and fiscal year. We continued to pursue new projects outside of our traditional crop yield-improvement projects, and have scheduled some of these projects in subsequent quarters. While this business has not performed according to our expectations in a normal operating environment as evidenced by lack of revenue after the June quarter last year, we feel that the pursuit of new business opportunities outside of our traditional customer base could allow this business to be better positioned once the agricultural end markets recover and could offer an opportunity for our construction business to utilize its equipment more consistently throughout the year.
“In regard to our family entertainment business for the fiscal 2017 year, we shifted our focus from opening new locations to working to increase the profitability at our nine existing centers. This included capital improvements at our facilities such as new games and more attractive floor layouts, expense reduction efforts, and price changes at some of our locations. We felt in some cases we may not have attained the ideal balance between customer value and price changes, and are assessing these price changes to try to capture more revenue. In the months ahead, we intend to focus on growth and continued cost reduction through better relationships with vendors, improved inventory management and increased control of labor.”
Fiscal 2017 Fourth Quarter Financial Review
- Total revenues for the three-month period ended March 31, 2017, were $7,348,410, as compared to $7,552,004 in the prior year quarter. The decrease in total revenue was attributable to decreases in both commission revenue and family entertainment revenue for the three-month period.
- Net operating revenue (gross profit) for the quarter was $3,033,667 compared to net operating revenue of $3,206,818 in the prior-year fiscal period.
- Operating expenses decreased slightly for the fiscal 2017 fourth quarter to $2,194,979 as compared to $2,327,521 for the prior year.
- Operating income was $838,688, a slight decrease compared to $879,297 as reported for the prior-year period, due primarily to a decrease in total revenues that was offset by reduced operating expenses.
- Operating EBITDA (excluding investment portfolio income) for the quarter was $1,044,148, as compared to $1,157,946 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 fourth quarter ended March 31, 2017 was $412,977, as compared to $149,219, in the prior year quarter.
- Net income for the fiscal 2017 fourth quarter was $746,445, or $0.11 per share, as compared to a net income of $587,099, or $0.08 per share for the prior year period. Net Income was positively impacted by an Investment gain of $412,977 for the quarter as compared to $149,219 for the prior year period.
Fiscal 2017 Financial Review
- Total revenues for the year ended March 31, 2017 decreased to $26,552,613 from $28,908,299 in the prior year period. Revenues in the Family Entertainment business increased while revenue decreased in the Construction business and in the Insurance Distribution business.
- Net operating revenue (gross profit) was $9,239,376, which compares to a net operating revenue of $9,109,952 in the prior-year fiscal period.
- Operating expenses increased to $8,722,784 for the 2017 fiscal year when compared to $8,103,359 for prior year period due, in part to increases in rent and occupancy expense (approximately $440,000) relating to the addition of new family entertainment centers coupled with increases in depreciation and amortization expenses (approximately $250,000) versus the prior year period.
- Operating income for the fiscal 2017 year was $516,592 compared to $1,006,593 for the prior-year period. The decrease in operating income for twelve-month period was partially due to a decline in the Company’s commission and construction revenues for the 2017 fiscal year, which was partially offset by an increase in revenue for TMA’s family entertainment business.
- Operating EBITDA (excluding investment portfolio income) for the year ended March 31, 2017 was $1,484,142 versus $1,923,192 in the prior-year period. The decrease in Operating EBITDA for the fiscal year ended March 31, 2017 was the result of a decrease in operating income. 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 year ended March 31, 2017 was $1,324,211 as compared to an investment loss of ($300,078) for the prior year period. Of the investment gain, net for the twelve months ending March 31, 2017, approximately $969,560 was unrealized, $257,485 was realized and the balance was interest and dividend income and investment management fees. For the prior year period net investment loss of ($300,078), unrealized losses were approximately ($245,881) and realized losses were approximately ($148,759) with the remaining balance being interest and dividend income and investment management fees.
- Net income for the year ended March 31, 2017 increased to $1,063,149, or $0.15 per share, compared to $312,542, or $0.04 per share, in the prior-year period. Net Income was positively impacted by, as noted above, an investment gain of $1,324,211 for the 2017 fiscal year as compared to an investment loss of ($300,078) for the prior year period, which offset a decline in operating profit.
Balance Sheet Information
- TMA’s balance sheet at March 31, 2017 reflected cash and cash equivalents of approximately $4.5 million, working capital of $10.4 million, and shareholders’ equity of $10.8 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||Twelve-months ended|
|March 31,||March 31,|
|Family entertainment revenue||1,358,649||1,424,976||5,189,950||4,121,913|
|Other operating income||191,586||226,500||389,820||293,850|
|Distributor related expenses:|
|Distributor bonuses and commissions||3,647,899||3,437,885||14,216,912||15,862,934|
|Business processing and distributor costs||275,286||296,317||1,322,465||1,493,112|
|Costs of construction:|
|Direct and indirect costs of construction||59,321||119,737||342,401||913,457|
|Family entertainment costs of sales:||317,729||404,063||1,272,350||1,170,781|
|Net operating revenue||3,033,667||3,206,818||9,239,376||9,109,952|
|Other income (expense):|
|Investment (loss) gain, net||412,977||149,219||1,324,211||(300,078||)|
|(Loss) Gain on disposal of assets||(577||)||–||(13,100||)||23,537|
|Swap settlement (expense) income||(8,926||)||(15,624||)||(49,267||)||(36,032||)|
|Interest rate swap, fair value adjustment||15,485||(71,569||)||117,115||(97,177||)|
|Income (loss) before provision for income taxes||1,190,086||890,887||1,662,424||447,892|
|Provision for income taxes (benefit)||443,641||303,788||599,275||135,350|
|Average Shares Outstanding||7,028,233||7,028,233||7,028,233||7,028,233|
|Operating Income per Share||$||0.12||$||0.12||$||0.07||$||0.14|
|Net Income per Share||$||0.11||$||0.08||$||0.15||$||0.04|
|Consolidated Selected Balance Sheet Items|
|Cash & Equivalents||$||
|Total Current Assets||21,152,644||21,050,551|
|Property and Equipment, Net||2,629,719||3,088,588|
|Intangible Assets, net||1,316,807||1,502,004|
Total Non Current Assets
|Liabilities & Stockholders’ Equity|
|Total Current Liabilities||$||10,784,318||$||10,561,554|
|Long Term Liabilities||
|Liabilities & Stockholders’ Equity||$||25,906,443||$||26,619,926|
Note – Operating EBITDA (excluding investment portfolio income)
Q4FY2017 Operating EBITDA (excluding investment portfolio income) was determined by adding Q4FY 2017 Operating Income of $838,688 and Depreciation and Amortization Expense of $205,460 for a total of $1,044,148. Q4FY2016 Operating EBITDA (excluding investment portfolio income) was determined by adding Q4FY 2016 Operating Income of $879,297 and Depreciation and Amortization Expense of $278,649 for a total of $1,157,946. The Company elects not to include investment portfolio income because the Company believes it is non-operating in nature.
Fiscal 2017 year-end Operating EBITDA (excluding investment portfolio income) was determined by adding FY2017 year-end Operating Income of $516,592 and Depreciation and Amortization Expense of $967,550 for a sum of $1,484,142. FY2016 year-end Operating EBITDA (excluding investment portfolio income) was determined by adding Operating Income of $1,006,593 and Depreciation and Amortization Expense of $916,599 for a sum of $1,923,192. 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.