The Marketing Alliance Announces Financial Results for its Fiscal 2021 Second Quarter Ended September 30, 2020

The Marketing Alliance, Inc. (OTC: MAAL) (“TMA” or the “Company”), today announced financial results for its fiscal 2021 second quarter ended September 30, 2020.

FY 2021 Second Quarter Financial Highlights (all comparisons to the prior year period)

• Revenues were $8,169,534 compared to $8,695,723, largely due to a $902,116 decline in family entertainment revenues as family entertainment locations remained closed during the quarter due to the COVID-19 pandemic
• Commission and fee revenues from the Company’s core insurance distribution business increased slightly as some of the obstacles to selling insurance presented by COVID abated during the quarter
• Operating expenses declined by 38% to $1,215,427
• Operating income increased to $541,918, compared to operating income of $150,678 in the prior year quarter
• Operating EBITDA (excluding investment portfolio income) was $621,569, compared to $292,744 in the prior year quarter
• Non-operating investment gain, net, increased to $200,423 compared to $93,800 in the prior year quarter
• Net income for the quarter was $565,956, or $0.07 per share, as compared to net income of $120,710, or $0.02 per share, in the prior year period

Management Comments

Timothy M. Klusas, TMA’s Chief Executive Officer, commented, “The results during the quarter were a testament to the adaptability of our associated agencies, carriers, and our internal team. Our insurance business accelerated its transition to solutions that utilized the Company’s capabilities through our call center and adoption of digital applications where clients do not need to physically see an agent or handle paper. This provided agents with the ability to continue assisting customers with their life insurance needs despite challenges created from the reduction of in-person contact, such as conducting medical exams and obtaining physical signatures necessary for completing the insurance application process. Throughout the quarter we were able to work with our agencies to bring insurance applications to completion in a manner that met the customer’s expectations and level of comfort with personal contact. The execution of our construction business in the quarter was exceptional, as a large project was pulled forward which should allow for additional projects this year before winter weather slows progress.”

Mr. Klusas concluded, “Our family entertainment business reported minimal revenues during the period as locations remained closed to the public. Due to the uncertainty of the business for the foreseeable future, we wrote-down asset values in prior periods and continued to evaluate operations on an ongoing basis. We permanently closed two additional locations during the quarter, leaving two remaining locations”

Quarterly Dividend Distribution

During the quarter, the Company’s Board of Directors declared a $0.06 per share cash dividend for shareholders of record on September 22, 2020, which was paid on September 30, 2020. In June 2020, the Company announced a change in its distribution plan to move to declare dividend distributions on a quarterly basis to have the benefit of the most recent information to make these decisions.

Fiscal 2021 Second Quarter Financial Review

• Total revenues for the three-month period ended September 30, 2020, were $8,169,534, as compared to $8,695,723 in the prior year quarter. This decrease was due mostly to a decrease in family entertainment revenue relative to the prior year period due to the COVID-19 pandemic, offset by slightly higher insurance revenue and increased construction revenue.

• Net operating revenue (gross profit) for the quarter was $1,757,345, compared to net operating revenue of $2,119,307 in the prior-year fiscal period. The decline was due to almost no revenue in the family entertainment business but was offset by significantly higher revenue and gross profit in the construction business.

• Operating expenses decreased to $1,215,427, or 14.9% of total revenues for the fiscal 2020 second quarter, as compared to $1,968,629, or 22.6% of total revenues for the same period of the prior year. The reduction in operating expenses was due in part to less rent and compensation expenses of four closed family entertainment locations, versus eight in the previous year period, and less travel and meetings expense due to the pandemic.

• The Company reported operating income of $541,918, compared to operating income of $150,678 in the prior-year period. Higher operating income for the period was largely due to higher gross margins in the Company’s insurance and construction businesses, and lower overall general and administrative expenses.

• Operating EBITDA (excluding investment portfolio income) was $621,569, compared to $292,744 in the prior year quarter. A note reconciling operating EBITDA to operating income can be found at the end of this release.

• Investment gain, net (from non-operating investment portfolio) for the quarter was $200,423, as compared to $93,800 for the same quarter of the previous fiscal year.

• Net income for the fiscal 2021 second quarter was $565,956, or $0.07 per share, as compared to net income of $120,710, or $0.02 per share, in the prior year period. The increase was largely due to higher operating income mentioned above, and an increase in investment income, and the benefit of a gain on sale of equipment in the construction business, compared to the prior year period.

Fiscal 2020 Six Months Financial Review

• Total revenues for the six months ended September 30, 2020 were $15,771,100, compared to $17,631,427, for the prior-year period. Increases in construction revenue helped to offset a decrease in family entertainment revenue for the six-month period and insurance commission revenue, which declined due to COVID-19. The impact of the pandemic on insurance operations were more pronounced in the Company’s fiscal first quarter but rebounded slightly in the current fiscal quarter.

• Net operating revenue (gross profit) was $3,131,500, which compares to net operating revenue of $4,288,837 in the prior-year fiscal period. The decline for the six months ended September 30, 2020 was due to substantially the same reasons as the decline for the quarter ended September 30.

• Operating expenses decreased by 33.5% during the first half of fiscal 2021 to $2,635,665, driven by lower expenses across the business, including compensation, rent expense and other general and administrative expenses. This decrease was mostly due to the reduction in family entertainment locations and less expenses due to the facilities being closed

• The Company reported increased operating income of $495,835 for the six months ended September 30, 2020, compared to an operating income of $327,340 for the prior-year period due lower expenses noted in the factors discussed above.

• Operating EBITDA (excluding investment revenue) for the six months was $682,797 versus $602,725 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, 2020, was $884,521, or $0.11 per share, compared to a net income of $398,903, or $0.05 per share, for the prior-year six-month period. The year over year increase was the result of higher operating income and higher investment gain compared to the prior year period.

Balance Sheet Information

• TMA’s balance sheet at September 30, 2020, reflected cash and cash equivalents of $1,084,317, working capital of $7,202,232, and shareholders’ equity of $7,301,952; compared to cash and cash equivalents of $2,130,973, working capital of $10,241,394, and shareholders’ equity of $7,299,119 as of March 31, 2020.
• Due to collateral requirements related to refinancing bank debt in the quarter, the Company lists Restricted Cash separately on the balance sheet from cash and cash equivalents to reflect the cash balances collateralizing debt and specifies in Current Assets the restricted amount scheduled to become unrestricted in the next twelve months.

About The Marketing Alliance, Inc.

Headquartered in St. Louis, MO, TMA provides support to independent insurance brokerage agencies, with a goal of integrating insurance and “insurtech” engagement platforms to provide members value-added services on a more efficient basis than they can achieve individually.

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, and our ability and intent to pay dividends in 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 our annuity business and our ability to continue to diversify our earth moving and excavating 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, the effect of the COVID-19 pandemic on our business, financial condition and results of operations, as well as the pandemic’s effect of heightening other risks within our business, privacy and cyber security regulations, expectations of the economic environment; material adverse changes in economic conditions in the markets we serve and in the general economy; future state and federal 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 Six Months Ended September 30, 2020 and September 30, 2019
Unaudited
		Three Months Ended									Six Months Ended
		September 30,									September 30,
		2020				2019					2020				2019
Insurance commission and fee revenue		$	7,209,629			$	7,176,583				$	14,588,335			$	14,829,512
Family entertainment revenue			8,244				910,360					12,455				1,769,694
Construction revenue			951,661				576,280					1,170,310				979,621
Other operating revenue			-				32,500					-				52,600
Total revenues			8,169,534				8,695,723					15,771,100				17,631,427
Insurance distributor related expenses:
Distributor bonuses and commissions			5,505,102				5,529,122					11,147,920				11,262,094
Business processing and distributor costs			459,176				389,057					886,218				776,214
Depreciation			6,600				1,650					13,200				2,700
			5,970,878				5,919,829					12,047,338				12,041,008
Costs of construction:
Direct and indirect costs of construction			381,360				366,637					495,825				792,997
Depreciation			47,995				20,800					63,595				31,200
			429,355				387,437					559,420				824,197
Family entertainment costs of sales			11,956				269,150					32,842				477,395
Total costs of revenues			6,412,189				6,576,416					12,639,600				13,342,600
Net operating revenue			1,757,345				2,119,307					3,131,500				4,288,827
Operating expenses			1,215,427				1,968,629					2,635,665				3,961,487
Operating income			541,918				150,678					495,835				327,340
Other income (expense):
Investment gain, net			200,423				93,800					740,992				383,178
Interest expense			(52,163	)			(86,448	)				(99,292	)			(174,228	)
Interest rate swap, fair value adjustment loss			-				(6,697	)				(216	)			(32,987	)
Interest rate swap settlement income			(217	)			3,777					(3,063	)			9,100
Net loss on disposal of property, equipment, and operating entities			45,995				-					20,865				-
Income before provision for income taxes			735,956				155,110					1,155,121				512,403
Income tax expense			170,000				34,400					270,600				113,500
Net income		$	565,956			$	120,710				$	884,521			$	398,903
Average Shares Outstanding			8,032,266				8,032,266					8,032,266				8,032,266
Operating Income per Share		$	0.07			$	0.02				$	0.06			$	0.04
Net Income per Share		$	0.07			$	0.02				$	0.11			$	0.05

CONSOLIDATED BALANCE SHEETS
As of September 30, 2020 and March 31, 2020
Unaudited
		September 30, 2020				March 31, 2020
ASSETS
Cash and cash equivalents		$	1,084,317			$	2,130,973
Investments			4,696,075				6,762,510
Restricted Cash			509,685				-
Receivables			12,747,342				12,642,870
Other			387,856				716,576
Total current assets			19,425,275				22,252,929
Property and Equipment, net			911,693				1,072,685
Restricted Cash			3,490,315				-
Operating lease right-of-use assets			2,004,170				3,091,711
Other			753,246				907,540
Total Non Current Assets			7,159,424				5,071,936
Total Assets		$	26,584,699			$	27,324,865
LIABILITIES AND SHAREHOLDERS' EQUITY
Total Current Liabilities			12,223,043				12,011,535
Total Long-term Liabilities			7,059,704				8,014,211
Total Liabilities			19,282,747				20,025,746
Total Shareholders' Equity			7,301,952				7,299,119
Total Liabilities and Shareholders' Equity		$	26,584,699			$	27,324,865

Note – Operating EBITDA (excluding investment portfolio income)

Fiscal 2021 second quarter operating EBITDA (excluding investment portfolio income) was determined by adding fiscal 2021 second quarter operating income of $541,918 and depreciation and amortization expense of $79,651 for a total of $621,569. Fiscal 2020 second quarter operating EBITDA (excluding investment portfolio income) was determined by adding fiscal 2020 second quarter operating income of $150,678 and depreciation and amortization expense of $142,066 for a total of $292,744.

Fiscal 2021 six months operating EBITDA (excluding investment portfolio income) was determined by adding fiscal 2019 six-month operating income of $495,835 and depreciation and amortization expense of $186,962 for a total of $682,797. Fiscal 2020 six months operating EBITDA (excluding investment portfolio income) was determined by adding fiscal 2019 six-month operating income of $327,340 and depreciation and amortization expense of $275,385 for a total of $602,725.

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.

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