The Marketing Alliance, Inc. (OTC: MAAL) (“TMA”), today announced financial results for its fiscal 2016 second quarter and six months ended September 30, 2015.

Mr. Timothy M. Klusas, TMA’s Chief Executive Officer, stated, “We were pleased with increases in revenue for the quarter in our insurance, construction and family entertainment businesses. While we did not operate these businesses as efficiently as we aspire to do, we continued to take steps to improve our effectiveness in each of these businesses given the operating environment of each respective business.” Mr. Klusas provided additional details below on each of the Company’s operations for the second quarter of the fiscal 2015 year:

  • Insurance Distribution Business: “While we were pleased with increasing revenues in our insurance distribution business, this business continued to be negatively impacted by changes in our customer mix and adjustments we made to changes among our carriers (suppliers). While we worked closely with our network of independent brokerage general agents to ensure that they had access to wide range of products offered by our carrier network and services that better equip their agents to meet their customers’ needs, the aforementioned changes caused expenses to increase more than revenues due to the investment required to grow our business with a different and new mix of carriers and distributors. For example, growth with newer carriers required extra expenses to become more familiar with new products to drive growth while declines in longer-standing carrier relationships reduced revenue where these extra expenses were not required. We are proud of our distributors’ effort and commend them for their hard work during this challenging business environment, and we continued to seek innovative ways to help our distributors grow their business and become more efficient.

    Klusas continued, “Our operating income in the insurance distribution business was also affected by certain items that had been previously deferred and expensed over the course of the prior year that were determined that for 2015 did not benefit future quarters, and were expensed in the current quarter. The net effects of these items were approximately $161,000 in the quarter by realizing these expenses in this quarter as opposed deferring and realizing in a different quarter later in the year. The effects of these reconciliations of distributor commissions, which have historically occurred at the end of the calendar year, are expected to be reduced as a result.”
  • Earth Moving (Land Improvement – Construction): “During the quarter, we were able to pursue additional projects not dependent on agriculture, not limited to spring and fall, and not reduced in scope due to low crop prices. As a result, we saw increased revenues and acquired new customers to add to our potential market. Finding new customers outside of agriculture has been a priority for this business during a period of low crop prices that suppressed farm incomes and therefore potential investment by farmers (in our services). We remained focused on price discipline and using our assets efficiently despite the adverse operating environment and the missed work days due to weather in the previous quarter, affecting our year-to-date results.
  • Family Entertainment: “We were pleased to report an increase in revenues in this business driven by the addition of two centers for the whole quarter versus the previous year, and three additional stores for approximately one month versus the quarter in the previous year. The facilities acquired over the past year have contributed to increasing economies of scale by operating more facilities with the same management team and leveraging expertise learned from the existing entertainment centers to utilize in new ones. We took steps toward our goal of growing the revenue of these facilities while also trying to operate them more efficiently, which required investment and expenses in the new facilities during the quarter. During the quarter we also experienced certain one-time expenses associated with the acquisition of three new family entertainment facilities of approximately $75,000. These expenses were associated with due diligence, renegotiating leases, and repairs.”

Fiscal 2016 Second Quarter Financial Review

  • Total revenues for the three-month period ended September 30, 2015, were $6,924,311, as compared to $6,236,435 in the prior year quarter. The increase was attributable to increases in revenue for each business of the Company’s operations.
  • Net operating revenue (gross profit) for the quarter was $1,976,340, compared to net operating revenue of $1,722,337 in the prior-year fiscal period. While net operating revenue decreased in the insurance distribution business due in part to certain items that had been previously deferred and expensed over the course of the prior year that were determined that for 2015 did not benefit future quarters, and were expensed in the current quarter, net operating revenue in the Earth Moving and Family Entertainment businesses increased.
  • Operating expenses increased by $433,177 for the fiscal 2016 second quarter as compared to the prior year, due in part to increases in compensation expense with the addition of new family entertainment centers as well as increases in rent and occupancy and office expenses relating to the Company’s acquisition of five family entertainment centers since January, 2015.
  • Operating income (loss) was ($1,207), compared to operating income of $177,967 reported in the prior-year period. The decrease in operating income for the fiscal 2016 second quarter was primarily attributable the aforementioned reductions in net operating revenue and increases in operating expenses.
  • Operating EBITDA (excluding investment portfolio income) for the quarter was $205,711 compared to $333,253 in the prior-year period. A note reconciling operating EBITDA to operating income can be found at the end of this release.
  • Investment loss, net (from investment portfolio) for the second quarter ended September 30, 2015 was ($649,086) loss, as compared to a net investment loss, net of ($247,256) loss, for the same quarter of the previous fiscal year. During this quarter, the S&P 500 declined by 6.4%, which coincided with investment losses of equities in our investment portfolio.
  • Net loss for the fiscal 2016 second quarter was ($423,097) loss, or ($0.06) per share, as compared to a net loss of ($36,926), or ($0.01) per share, in the prior year period despite an increase in net operating revenue for fiscal 2016 second quarter. The decrease in net income was largely due to increases in unrealized losses on investments during the period and the decrease in operating income. (Operating EPS and Net EPS are stated after giving effect to a 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.)

Fiscal 2016 Six Months Financial Review

  • Total revenues for the six months ended September 30, 2015 were $13,664,565, compared to $12,785,973 for the prior-year period. Increases in commission revenue and family entertainment revenue contributed to the rise in total revenue for the six month period.
  • Net operating revenue (gross profit) was $3,630,906, which compares to net operating revenue of $3,747,551 in the prior-year fiscal period.
  • Operating expenses increased in the first six months of this fiscal year compared to the same period last year due, in part, to increases in operating expenses such as compensation, rent, amortization and depreciation expense relating to the Company’s acquisition of five family entertainment centers in January, 2015, that were not included in the prior year period.
  • The Company reported an operating loss of ($77,467) for the six months ended September 30, 2015 compared to an operating income of $925,593 for the prior-year period due to the aforementioned factors discussed above.
  • Operating EBITDA (excluding investment revenue) for the six months was $322,724 versus $1,245,991 in the prior-year period. A note reconciling Operating EBITDA to Operating Income can be found at the end of this release.
  • Net income (loss) for the six months ended September 30, 2015 was ($483,516) loss, or ($0.07) per share, compared to $490,825, or $0.07 per share, in the prior-year period. The net loss for the six months ended September 30, 2015 was the result of an investment loss and a decrease in operating income.

Balance Sheet Information

  • TMA’s balance sheet at September 30, 2015 reflected cash and cash equivalents of approximately $5.5 million, working capital of $8.2 million, and shareholders’ equity of $12.1 million; compared to $5.7 million, $10.1 million, and $12.6 million, respectively, at March 31, 2015.

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 eight 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 2016 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
Quarter Ended     Year to Date
3 Months Ended 6 Months Ended
9/30/2015   9/30/2014 9/30/2015   9/30/2014
 
Commission revenue $ 5,566,921 $ 5,513,621 $ 11,291,464 $ 11,183,502
Construction revenue 513,617 360,526 812,827 915,921
Family entertainment revenue $ 843,773   $ 362,288     1,560,274     686,550  
Revenues 6,924,311 6,236,435 13,664,565 12,785,973
 
Distributor Related Expenses
Bonus & commissions 3,998,331 3,705,731 8,218,113 7,333,463
Processing & distribution 381,367 447,987 819,410 924,582
Depreciation   2,725     2,711     5,465     5,378  
Total 4,382,423 4,156,429 9,042,988 8,263,423
 
Cost of Construction
Direct and Indirect costs of construction 307,706 208,751 502,623 462,255
Depreciation   87,578     84,045     174,982     170,524  
Total 395,284 292,796 677,605 632,779
 
Family entertainment cost of sales   170,264     64,873     313,066     142,220  
 
Net Operating Revenue   1,976,340     1,722,337     3,630,906     3,747,551  
 
Operating Expenses   1,977,547     1,544,370     3,708,373     2,821,958  
 
Operating Income (loss) (1,207 ) 177,967 (77,467 ) 925,593
 
Other Income (Expense)
Investment gain, (loss) net (649,086 ) (247,256 ) (643,602 ) (134,079 )
Interest expense (50,777 ) (28,872 ) (85,438 ) (58,391 )
Loss on disposal of assets - 8,738 - 8,541
Interest rate swap, fair value adjustment (174 ) 5,744 1,806 6,051
Other income   20,000     -     20,000     -  
 
Income (Loss) Before Provision for Income Tax (681,244 ) (83,679 ) (784,701 ) 747,715
 
Provision for income taxes   (258,147 )   (46,753 )   (301,185 )   256,890  
 
Net Income (loss) $ (423,097 ) $ (36,926 ) $ (483,516 ) $ 490,825  
 
Average Shares Outstanding 7,028,233 7,028,233 7,028,233 7,028,233
 
Operating Income per Share $ 0.00 $ 0.03 $ (0.01 ) $ 0.13
Net Income per Share $ (0.06 ) $ (0.01 ) $ (0.07 ) $ 0.07
 

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 9/30/15     3/31/15
Cash & Equivalents $ 5,485,245 $ 5,678,445
Investments 5,439,198 5,406,399
Receivables 7,933,689 8,250,089
Other   1,470,872   1,532,021
Total Current Assets 20,329,004 20,866,954
 
Property and Equipment, Net 2,098,527 1,837,916
Intangible Assets, net 1,699,249 991,006
Other   980,751   760,851

Total Non Current Assets

   4,778,527   3,589,773
 
Total Assets $ 25,107,531 $ 24,456,727
 
Liabilities & Stockholders' Equity
Total Current Liabilities $ 12,101,414 $ 10,714,388
Long Term Liabilities  

911,260

 

1,163,966

 
Total Liabilities   13,012,674   11,878,354
 
Stockholders' Equity   12,094,857   12,578,373
 
Liabilities & Stockholders' Equity $ 25,107,531 $ 24,456,727
 

Note – Operating EBITDA (excluding investment portfolio income)

Fiscal year 2016 second quarter operating EBITDA (excluding investment portfolio income) was determined by adding fiscal year 2016 second quarter operating income (loss) of ($1,207) and depreciation and amortization expense of $206,918 for a sum of $205,711. Fiscal year 2015 second quarter operating EBITDA (excluding investment portfolio income) was determined by adding fiscal year 2015 second quarter operating income of $177,967 and depreciation and amortization expense of $155,286 for a sum of $333,253.

Fiscal year 2016 six months operating EBITDA (excluding investment portfolio income) was determined by adding fiscal year 2016 six month operating income (loss) of ($77,467) and depreciation and amortization expense of $400,191 for a sum of $322,724. Fiscal year 2015 six months operating EBITDA (excluding investment portfolio income) was determined by adding fiscal year 2015 six month operating income of $925,593 and depreciation and amortization expense of $320,398 for a sum of $1,245,991. 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.