MAAL Marketing Alliance Inc (PK)

FY 2014 Second Quarter Financial Highlights (all comparisons to the prior year period)

• Revenues were $6,261,436 compared to $6,606,509, due to lower insurance distribution revenue and lower construction revenues versus prior period
• Net operating revenue (gross profit) improved to $1,721,114, compared to $1,583,445
• Operating income was $171,598 compared to $239,825
• Operating EBITDA (excluding investment portfolio income) was $332,927, compared to $359,199
• Net income of $187,477, or $0.06 per share, as compared to net income of $314,447, or $0.10 per share
• Company’s Board of Directors declared a 6:5 stock split (20%), and the new shares were distributed on August 9, 2013 to shareholders of record as of the close of business on July 26, 2013.

The Marketing Alliance, Inc. (OTC:MAAL) (“TMA”), today announced financial results for its fiscal 2014 second quarter and six months ended September 30, 2013.

Mr. Timothy M. Klusas, TMA’s Chief Executive Officer, stated, “We are pleased with our results in light of the challenges faced in our insurance and construction businesses. We are focused on re-investing in our businesses, operating profitably, and continuing to leverage our balance sheet ($12.9 million in working capital) to seek other growth opportunities that could potentially enhance the returns for TMA’s shareholders and customers.” Mr. Klusas provided additional details below on each of the Company’s operations for the second quarter of the fiscal 2014 year:

• Insurance Distribution Business: “We are pleased with our progress during the quarter and have continued to benefit from our existing long-term distributor and carrier relationships. A number of our member agencies have shown continued resiliency throughout a difficult operating environment that has caused some insurance carriers (suppliers) to consolidate their product offerings. Product consolidation affects TMA and its associated agencies by deferring sales or causing sales to occur outside the TMA network of carriers when a product is no longer available in our current carriers’ portfolios. Sales unique to that product are either lost or deferred until a new carrier relationship that has that product can be established. While short-term fluctuations in a certain carrier’s product offering may affect our quarter-to-quarter results and revenue, we feel that in the long-run our members benefit from TMA providing a wider array of products from a variety of carriers as opposed to agencies offering these products on their own. An example is that if an individual needs a certain life insurance product, typically our member agencies will have a number of choices to offer, which retains that customer and satisfies their needs. This benefits TMA as well as our nationwide network of independent agencies, which recognize the value proposition of our insurance business and therefore remain dedicated to using our services and insurance products.
• Earth Moving (Land Improvement – Construction): “During the quarter, we continued to make progress despite challenging weather conditions for our services. These challenges came in the form of a late planting in the spring due to wet weather that delayed the harvest in the fall. The fall season between harvest and the onset of winter is our busiest time, and this delayed the start of the season to beyond the end of the period. We also continued to execute our integration plan for this part of the Company. This plan included the reclassification of expenses relating to our construction operations instead of grouping these costs with general operating expenses (see financial review below). Had we applied the same criteria, for example, to the comparable quarter last year, cost of construction last year would have increased by approximately $146,000 and general operating expenses would have decreased by an identical amount, with no change in operating income. In addition, we remained committed to selecting projects that generated more acceptable returns. Due in part to these efforts, gross profit margin would have increased from 13% to 30% for the quarter as compared to the same period of the prior year using the classification described above.
• Family Entertainment: “We have been pleased with the performance of our two children and party entertainment facilities business, and continue to see a number of potential avenues to enhance our value proposition even further. During the period we added a number of internal improvements to the locations, including video game machines at one of the facilities and subsequent to the end of period, adding video game machines to our other location, as well. The cost of this investment and related expenses are included in the period. These video game machines are generally capital investments that add to the bottom line of a largely fixed-cost business. Our objective when we purchased this business in September 2012 was to put our shareholder’s capital to work in situations that could offer attractive returns and additional free cash flow for shareholders and have been pleased with the results to date.”Subsequent to end of the quarter, the Board of Directors authorized a $0.36 per share cash dividend for shareholders of record on December 20, 2013, to be paid on or about January 31, 2014, representing an increase of 13.7% over the 2012 cash dividend as a result of a 6:5 stock split distributed on August 9, 2013 during the quarter.

Fiscal 2014 Second Quarter Financial Review

• Total revenues for the three-month period ended September 30, 2013, were $6,261,436, as compared to $6,606,509 in the prior year quarter. The decrease was due to a $484,258 decline in insurance distribution revenue and a $122,919 decline in construction revenue, offset by a $262,104 increase from the two family entertainment facilities.
• Net operating revenue (gross profit) for the quarter was $1,721,114, compared to net operating revenue of $1,583,445 in the prior-year fiscal period. Gross profit in the prior year period would have been reduced by, approximately $146,000 if that same amount had been included in direct and indirect construction expenses versus being included in operating expenses. A portion of the increase in Net Operating Revenue was due to the inclusion of the Family Entertainment business which was included for only two weeks in the prior year period.
• Operating expenses increased due in part to the addition of a full quarter of operations for the Family Entertainment business this year versus approximately only two weeks of operations in the previous year.
• Operating income was $171,598, compared to operating income of $239,825 reported in the prior-year period. This change was due in part to the factors discussed above in each of the businesses and increases in operating expenses that exceeded the increase in net operating revenue.
• Operating EBITDA (excluding investment portfolio income) for the quarter was $332,927 compared to $359,199 in the prior-year period. A note reconciling operating EBITDA to operating income can be found at the end of this release.
• Net income for the fiscal 2014 second quarter was $187,477, or $0.06 per share, as compared to net income of $314,447, or $0.10 per share, in the prior year period. (Operating EPS and Net EPS are stated after giving effect to the 20% stock split for shareholders of record as of July 26, 2013 and paid August 9, 2013 for all periods. Shares outstanding increased to 3,012,100 from 2,510,083 with this stock split and have been retroactively adjusted to account for the split.)
• Net investment gain, net (from investment portfolio) for the second quarter ended September 30, 2013 was $148,104, as compared to net investment gain, net of $274,316, for the same quarter of the previous fiscal year. The decrease was largely due to higher unrealized gains during the prior year period.

Fiscal 2014 Six Months Financial Review

• Total revenues for the six months ended September 30, 2013 were $13,250,497, compared to $13,439,359 in revenues for the prior-year period.
• Net operating revenue (gross profit) was $3,831,233, which compares to net operating revenue of $3,422,736 in the prior-year fiscal period.
• Operating income was $754,940, compared to $833,143 for the prior-year period.
• Operating EBITDA (excluding investment revenue) for the six months was $1,067,993 versus $1,071,037 in the prior-year period. A note reconciling Operating EBITDA to Operating Income can be found at the end of this release.
• Net income for the six months ended September 30, 2013 was $477,819, or $0.16 per share, compared to $567,861 or $0.19 per share, in the prior-year period.

Balance Sheet Information

• TMA’s balance sheet at September 30, 2013 reflected cash and cash equivalents of approximately $6.2 million, working capital of $12.9 million, and shareholders’ equity of $13.8 million; compared to $6.0 million, $12.7 million, and $13.3 million, respectively, at March 31, 2013.

About The Marketing Alliance, Inc.

Headquartered in St. Louis, MO, TMA operates three business segments. 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 two 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. Any forward-looking statements contained in this press release represent our estimates only as of the date hereof, or as of such earlier dates as are indicated, and should not be relied upon as representing our estimates 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; 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 9/30/2013     9/30/2012 9/30/2013     9/30/2012   Commission revenue $ 5,293,052 $ 5,777,310 $ 11,068,259 $ 11,596,372 Construction revenue 660,498 783,417 1,560,524 1,797,205 Family entertainment revenue $ 307,886     45,782     621,714     45,782   Revenues 6,261,436 6,606,509 13,250,497 13,439,359   Distributor Related Expenses Bonus & commissions 3,634,177 3,939,462 7,469,852 7,821,346 Processing & distribution 389,373 543,176 813,207 1,142,487 Depreciation   3,219     3,675     5,688     7,349   Total 4,026,769 4,486,313 8,288,747 8,971,182   Cost of Construction Direct and Indirect costs of construction 372,259 442,201 852,669 860,729 Depreciation   89,443     91,017     179,032     181,179   Total 461,702 533,218 1,031,701 1,041,908   Family entertainment cost of sales   51,851     3,533     98,816     3,533     Net Operating Revenue   1,721,114     1,583,445     3,831,233     3,422,736     Operating Expenses   1,549,516     1,343,620     3,076,293     2,589,593     Operating Income 171,598 239,825 754,940 833,143   Other Income (Expense) Investment gain, (loss) net 148,104 274,316 29,950 105,832 Interest expense (21,791 ) (18,428 ) (50,645 ) (44,836 ) Gain on sale of assets 11,380 - 11,380 - Interest rate swap, fair value adjustment   (2,024 )   -     15,305     -     Income Before Provision for Income Tax 307,267 495,713 760,930 894,139   Provision for income taxes   119,790     181,266     283,111     326,278     Net Income $ 187,477   $ 314,447   $ 477,819   $ 567,861     Average Shares Outstanding 3,012,100 3,012,100 3,012,100 3,012,100   Operating Income per Share $ 0.06 $ 0.08 $ 0.25 $ 0.28 Net Income per Share $ 0.06 $ 0.10 $ 0.16 $ 0.19  

Note: * - Operating EPS and Net EPS stated after giving effect to the 20% stock split for shareholders of record as of July 26, 2013 and paid August 9, 2013 for all periods. Shares outstanding increased to 3,012,100 from 2,510,083 with this stock split and have been retroactively adjusted to account for the split.

  Consolidated Selected Balance Sheet Items       As of Assets 9/30/13     3/31/13 Cash & Equivalents $ 6,188,064 $ 6,007,286 Investments 4,410,931 4,237,026 Receivables 9,131,867 9,251,879 Other   515,832   621,312 Total Current Assets 20,246,694 20,117,503   Property and Equipment, Net 1,551,023 1,652,031 Intangible Assets, net 898,993 960,899 Other   749,972   801,576  

Total Non-Current Assets

  3,199,988   3,414,506   Total Assets $ 23,446,682 $ 23,532,009   Liabilities & Stockholders' Equity Total Current Liabilities $ 7,332,368 $ 7,463,975   Long Term Liabilities  

2,343,471

 

2,775,010

  Total Liabilities   9,675,839   10,238,985   Stockholders' Equity   13,770,843   13,293,024   Liabilities & Stockholders' Equity $ 23,446,682 $ 23,532,009  

Note – Operating EBITDA (excluding investment portfolio income)

Fiscal year 2014 second quarter operating EBITDA (excluding investment portfolio income) was determined by adding fiscal year 2014 second quarter operating income of $171,598 and depreciation and amortization expense of $161,329 for a sum of $332,927. Fiscal year 2013 second quarter operating EBITDA (excluding investment portfolio income) was determined by adding fiscal year 2013 second quarter operating income of $239,825 and depreciation and amortization expense of $119,374 for a sum of $359,199. The Company elects not to include investment portfolio income because the Company believes it is non-operating in nature.

Fiscal year 2014 six months operating EBITDA (excluding investment portfolio income) was determined by adding fiscal year 2014 six month operating income of $754,940 and depreciation and amortization expense of $313,053 for a sum of $1,067,993. Fiscal year 2013 six months operating EBITDA (excluding investment portfolio income) was determined by adding fiscal year 2013 six months operating income of $833,143 and depreciation and amortization expense of $237,894 for a sum of $1,071,037. 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.

The Marketing Alliance, Inc.Timothy M. Klusas, 314-275-8713Presidenttklusas@themarketingalliance.comwww.themarketingalliance.comorInvestor RelationsThe Equity Group Inc.Adam Prior, 212-836-9606Senior Vice Presidentaprior@equityny.comorTerry Downs, 212-836-9615Associatetdowns@equityny.com