The Marketing Alliance, Inc. (OTC: MAAL) (TMA or the Company), today announced financial results for its fiscal 2019 third quarter ended December 31, 2018.
FY 2019 Third Quarter Financial Highlights (all comparisons to the prior year)
- Revenues increased 14% to $8,595,839, largely due to higher commission and fee revenue in the insurance business and an increase in revenue in the construction business
- Operating income was $209,747, as compared to operating income of $286,288 in the prior year quarter, largely due to costs of revenue increasing more than the combination of increased revenues and decreased operating expenses
- Operating EBITDA (excluding investment portfolio income) was $386,891, compared to $472,507 in the prior year quarter
- Non-operating investment gain (loss), net, of ($1,190,132) compared to a gain of $147,245 in the prior year quarter primarily related to a decrease in the market value of the equity securities the Company held at December 31, 2018
- Net loss was ($804,449), or ($0.10) per share, as compared to net income of $604,726, or $0.08 per share in the prior year period, driven in this period by non-operating investment gain (loss)
Timothy M. Klusas, TMAs Chief Executive Officer, commented, While we saw revenue growth in excess of 17% in the insurance business, we did not attain some of the beneficial compensation reconciliations from carriers that we have in the past, which resulted in our payments to distributors (expenses) increasing by almost the same amount. Despite this business mix, the growth of agencies was encouraging, particularly through digital applications and related technologies. Our insurance agencies once again continued to work with their agents to increase adoption and we continued to see additional carriers express their desire to increase their presence on our platform.
Mr. Klusas also commented, Construction revenues continued to grow this quarter as we continued our progress in seeking roadway projects to offset the weakness in agricultural prices, such as corn and soybeans, which had historically driven demand for our traditional field drainage services. As we mentioned in the previous quarter, we made progress in right-sizing the equipment necessary for the business by divesting excess equipment not being used in our roadway projects, or foreseeably would be used by the agricultural drainage businesses when demand returns. We continued to pursue roadway projects, using our refined equipment strategy, to be initiated in subsequent quarters based on the relationships we have established. Our family entertainment business was challenged again in the quarter due to weather related closures in the Charlotte and St. Louis metropolitan areas, where unplanned closures due to inclement weather at historically big sales times (weekends, holidays, no school for children) curtailed our times open for business. In addition, we continued to work to implement refined pricing and additional associate training initiatives throughout all of our locations to find the right balance between expense savings and providing an outstanding value for our customers. All in all, our results showed some progress, and we were able to proactively address challenges in other parts of the business. While TMA has historically maintained a consistent percentage of its overall investments in equity securities, we incurred pre-tax net investment losses due to a general downturn in equity markets during the fourth quarter of 2018.
Fiscal 2019 Third Quarter Financial Review
- Total revenues for the three-month period ended December 31, 2018, were $8,595,839 as compared to $7,555,686 in the prior year quarter. This was due to increases in insurance commission and construction revenue for the period, which offset a decrease in family entertainment revenue relative to the prior year period. The decrease in family entertainment revenue was due to many factors including unplanned closures due to inclement weather during traditionally busy times when school was not in session, such as holidays and weekends.
- Net operating revenue (gross profit) for the quarter was $2,350,788 compared to net operating revenue of $2,467,187 in the prior-year fiscal period. Most of the decline is attributable to lower revenue in the family entertainment business, as well as in the construction business versus last year due to an unfavorable comparison to a job-in-progress whose full cost was reconciled at its completion last quarter.
- Operating expenses decreased to $2,141,041, or 24.9% of total revenues for the fiscal 2019 third quarter, as compared to $2,180,899, or 28.9% of total revenues for the same period of the prior year. Operating expenses decreased as a percentage of total revenues, mainly due to lower technology and travel costs in the quarter compared to the prior year quarter.
- The Company reported an operating income of $209,747, compared to operating income of $286,288 reported in the prior-year period. This decrease in operating income (decrease in operating profit) was the result of the factors mentioned above, where the increases in revenues and decreases in operating expenses were offset by a greater increase in cost of revenue (or cost of sales).
- Operating EBITDA (excluding investment portfolio income) for the quarter was $386,891, compared to $472,507 in the prior year period. A note reconciling operating EBITDA to operating income can be found at the end of this release.
- Investment gain (loss), net (from non-operating investment portfolio) for the third fiscal quarter ended December 31, 2018 was ($1,190,132), as compared to $147,245 for the same quarter of the previous fiscal year. Investment gain (loss), net contains realized and unrealized gains (losses), of which in the quarter unrealized gains (losses) were approximately ($1,270,000) loss.
- Net income (loss) for the fiscal 2019 third quarter was ($804,449), or ($0.10) per share, as compared to net income of $604,726, or $0.08 per share, in the prior year period. The decrease in net income was primarily due to the decline of investments seen in Investment gain (loss), net, during the quarter.
Fiscal 2019 Nine Months Financial Review
- Total revenues for the nine months ended December 31, 2018 were $24,604,979, compared to $22,672,932 for the prior-year period. Increases in insurance distribution revenues of approximately $2 million and an increase in construction revenue helped to offset a decrease in family entertainment revenue for the nine-month period.
- Net operating revenue gross profit was $6,747,040, which compares to net operating revenue of $6,865,673 in the prior-year fiscal period.
- Operating expenses increased in the first nine months of this fiscal year compared to the same period last year due in part to increases in compensation and professional fees, primarily in the family entertainment business, offset by a decrease in technology expenses. As a percentage of revenues, operating expenses improved to 27.4% from 30.3% in the prior year nine month period.
- The Company reported an operating loss of ($12,740) for the nine months ended December 31, 2018, compared to an operating income of $247,757 for the prior-year period due to the factors discussed above.
- Operating EBITDA (excluding investment revenue) for the nine months was $540,238, compared to $820,566 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 nine months ended December 31, 2018, was ($681,090), or ($0.08) per share, compared to a net income of $838,600, or $0.10 per share, for the prior-year nine-month period. The year over year decrease was the result of lower operating profit, lower investment gain (loss). These were partially offset by a gain on sale of equipment during the current year.
Balance Sheet Information
- TMAs balance sheet at December 31, 2018 reflected cash and cash equivalents of approximately $4 million, working capital of $7.9 million, and shareholders equity of $9.2 million; compared to cash and cash equivalents of approximately $3.4 million, working capital of $9.7 million, and shareholders equity of $10.4 million, at March 31, 2018.
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 childrens play and party facilities. Investor information can be accessed through the shareholder section of TMAs website at: http://www.themarketingalliance.com/shareholder-information.
TMAs 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 2019 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 Labors 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, changes in the public securities markets that affect the value of our investment portfolio, 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 STATEMENTS OF OPERATIONS|
|Three and Nine Months Ended December 31, 2018 and 2017|
|Three Months Ended||Nine Months Ended|
|December 31,||December 31,|
|Commission and fee revenue||$||7,079,895||$||6,018,161||$||20,175,839||$||18,198,362|
|Family entertainment revenue||997,678||1,113,434||3,214,729||3,396,070|
|Other operating income||103,284||70,000||184,721||181,541|
|Distributor related expenses:|
|Distributor bonuses and commissions||5,235,678||4,212,887||14,867,778||13,047,078|
|Business processing and distributor costs||435,787||365,235||1,220,921||1,209,042|
|Costs of construction:|
|Direct and indirect costs of construction||248,780||181,767||763,345||575,970|
|Family entertainment costs of sales||287,447||315,271||950,095||940,747|
|Total costs of revenues||6,245,051||5,088,499||17,857,939||15,807,259|
|Net operating revenue||2,350,788||2,467,187||6,747,040||6,865,673|
|Operating income (loss)||209,747||286,288||(12,740||)||247,757|
|Other income (expense):|
|Investment gain, net||(1,190,132||)||147,245||(904,381||)||695,375|
|Interest rate swap, fair value adjustment income (loss)||(27,709||)||23,307||(15,308||)||21,688|
|Swap settlement income (expense)||3,184||(3,160||)||8,969||(12,912||)|
|Gain (loss) on disposal of property and equipment||8,500||–||256,638||(6,924||)|
|Income (loss) before provision for income taxes||(1,087,263||)||383,327||(933,604||)||740,471|
|Income tax expense (benefit)||(282,814||)||(221,399||)||(252,514||)||(98,129||)|
|Net income (loss)||$||(804,449||)||$||604,726||$||(681,090||)||$||838,600|
|Average shares outstanding||8,032,266||8,032,266||8,032,266||8,032,266|
|Operating income per Share||$||0.03||$||0.04||$||(0.00||)||$||0.03|
|Net Income per Share||$||(0.10||)||$||0.08||$||(0.08||)||$||0.10|
|CONSOLIDATED BALANCE SHEETS|
|As of December 31, 2018 and March 31, 2018|
|December 31, 2018||March 31, 2018|
|Cash and cash equivalents||$||4,011,324||$||3,431,155|
|Total Current Assets||21,222,521||21,865,518|
|Property and Equipment, net||1,985,888||2,234,797|
|Intangible Assets, net||1,106,433||1,169,497|
|Total Non Current Assets||4,012,403||4,276,032|
|LIABILITIES AND SHAREHOLDERS’ EQUITY|
|Long Term Liabilities||2,742,624||3,593,254|
|Total Liabilities and Shareholders’ Equity||$||26,591,420||$||26,141,550|
Note “ Operating EBITDA (excluding investment portfolio income)
Fiscal 2019 third quarter operating EBITDA (excluding investment portfolio income) was determined by adding fiscal 2019 third quarter operating income of $209,747 and depreciation and amortization expense of $177,144 for a total of $386,891. Fiscal 2018 third quarter operating EBITDA (excluding investment portfolio income) was determined by adding Fiscal 2018 third quarter operating income of $286,288 and depreciation and amortization expense of $186,219 for a total of $472,507.
Fiscal 2019 nine months operating EBITDA (excluding investment portfolio income) was determined by adding fiscal 2019 nine-month operating loss of ($12,740) and depreciation and amortization expense of $552,978 for a total of $540,238. Fiscal 2019 nine months operating EBITDA (excluding investment portfolio income) was determined by adding fiscal 2018 nine-month operating income of $247,757 and depreciation and amortization expense of $572,809 for a total of $820,566.
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 companys 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.
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