The Marketing Alliance Announces Financial Results for Its Fiscal 2016 Third Quarter and Nine Months Ended December 31, 2015

The Marketing Alliance, Inc. (OTC: MAAL) (“TMA”), today announced financial results for its fiscal 2016 third quarter and nine months ended December 31, 2015.

Mr. Timothy M. Klusas, TMA’s Chief Executive Officer, provided additional details below on the Company’s operations for the third quarter of the 2016 fiscal year:

• Insurance Distribution Business: “We continue to work with our current carriers to ensure that the independent agents in our network are able to operate efficiently and offer their customers a wide range of products. While net operating revenue margins were down for the nine month period versus the prior year, we anticipated the decrease due to the continuing low-interest rate environment and recognize that ongoing changes in product offerings often have led to a transitional period for our distributors. The comparison to the first nine-months of this fiscal year to the prior one was affected by factors most notably in the life insurance business and our long-term care business. In-force rate increases and changing product features adversely affected our long-term care business as revenues and profitability decreased substantially from the prior year. While it is unclear whether these factors will reverse, we could not offer more long-term products or more carriers’ products to offset the reduction in business. We feel our experience was comparable to others in the industry. Our life insurance business was affected by the changing dynamics of carrier’s relative strengths and our having to adjust to these changes by paying more commission expense relative to revenue to producers to drive new relationships. Please recall that our insurance revenue is driven by new insurance product sales. The most prominent example of this phenomena occurred subsequent to the end of the quarter when Genworth Financial announced it would suspend new life insurance and annuity sales after early March 2016. We had enjoyed a significant and beneficial relationship with Genworth as it had historically been one of our largest carrier relationships on the basis of revenue and new business insurance premium. This particular relationship had lasted for many years, even predating our Company and Genworth, as many of our distributors had a long relationship with companies that were antecedents to Genworth. While this announcement to cease new business came after the end of the quarter, it was preceded by a gradual decrease in revenue that occurred over the last few years and the announcement was the last step of that drawdown in business. Although new long-term care sales will continue at Genworth, it is worth mentioning that Genworth is a prominent carrier for our Company in the long-term care market. In part to offset some of these developments, we have initiated new carrier relationships with John Hancock Life Insurance Company and One America to continue to offer competitive products for our distributors to, in turn offer, their agents.“

Klusas continued, “Another impactful event after the end of quarter was the Department of Labor’s announcement regarding fiduciary rules and processes governing advice related to financial services product sales. While we and our distributors aspire to comply with the highest standards for our clients, the additional steps and compliance costs necessitated by these actions could increase insurance carriers’ costs to provide products for our distributors to sell. This is another example of the uncertainty caused by a changing regulatory environment. Although the ruling was released after the quarter, the uncertainty in anticipation of its release contributed to obstacles in growing our insurance distribution business. As we have emphasized in the past, we value our distributors’ ongoing support and appreciate their efforts, as we remained committed to helping them grown their business. We feel that we offer many solutions to independent agencies to adjust to changes in the life insurance business through value-added services and more access to new carriers than they could achieve on their own.”

• Earth Moving (Land Improvement – Construction): “During the quarter, we continued to focus on actively seeking projects that best utilize our assets and continue to pursue additional opportunities and relationships with new customers that are not solely dependent on agriculture. The overall weakness in the agricultural sector and a slowdown in our markets have led to a more cautious mindset for farmers, and finding new customers outside of the agricultural industry remained a top priority for this segment of our business. While we partially recovered the difference in revenue in the second fiscal quarter from a wet spring and weak agricultural market, in this quarter we failed to realize the sales volume with farmers similar to what we had in the prior year period. Starting with a late harvest that followed a late spring planting that shortened our work season in farm fields before the onset of winter, farmers and farm managers were reluctant to pursue, or chose to defer, the large yield-enhancing projects that we provide, and as a result, our revenue decreased from the prior year period. While our focus has been on pursuing customers outside of agriculturally-dependent enterprises, we have seen some deferred projects on farms become active projects this year.”
• Family Entertainment: “We have been pleased with the progress made over the past calendar year for this business. Since January 1, 2015, we have we have acquired six additional franchised locations including two in Florida and four in the Charlotte, North Carolina metropolitan area, including one in this last quarter ended in December. We have also opened a new location in the St. Louis area in April, 2016. We intended to make improvements to each location in an attempt to increase revenue and improve the performance of each location. We have identified approximately $300,000 of non-recurring expenses included in operating expenses in the first nine months of this fiscal year that we would not expect to realize after our acquisition and initial improvements have been completed, such as legal, information technology, and repairs. While this affects our operating income this year by increasing operating expenses, we felt this would enhance the operating performance of our newly acquired stores. We also felt that with nine locations, including the new one in April, 2016, we would have adequate size and scale to be able to maximize the benefits of best practices at each location and effectively leverage our common expenses. Our focus is now to work to realize these benefits.”

Fiscal 2016 Third Quarter Financial Review

• Total revenues for the three-month period ended December 31, 2015, were $7,624,380, as compared to $7,399,580 in the prior year quarter. The increase in total revenue was attributable to a $731,329 increase in family entertainment revenue over the prior year, which offset decreases in commission revenue and construction revenue for the three month period.
• Net operating revenue (gross profit) for the quarter was $2,313,527, compared to net operating revenue of $1,749,548 in the prior-year fiscal period. Net operating revenue increased in the quarter in the insurance distribution business as year-end reconciliations offset increased commission expenses in prior quarters. Net operating revenue increased in the family entertainment business with the addition of stores compared to last year, while the net operating revenue of the land improvement business was down due to weakness in agriculture as discussed above.
• Operating expenses increased to $2,108,764 for the fiscal 2016 third quarter as compared to $1,409,020 for the prior year, due primarily 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 six family entertainment centers since January 2015 that were not included in the prior year period.
• Operating income was $204,763, compared to operating income of $340,528 reported in the prior-year period. The decrease in operating income for the fiscal 2016 third quarter was primarily attributable the aforementioned increases in operating expenses despite an increase in net operating revenue year over year for the fiscal 2016 third quarter.
• Operating EBITDA (excluding investment portfolio income) for the quarter was $442,522 compared to $496,053 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 third quarter ended December 31, 2015 was $194,305, as compared to a net investment loss of ($2,952), for the same quarter of the previous fiscal year.
• Net income for the fiscal 2016 third quarter was $208,959, or $0.03 per share, as compared to a net income of $262,671, or $0.04 per share, in the prior year period despite an increase in net operating revenue for fiscal 2016 third quarter. The decrease in net income was largely due to factors affecting revenue, net operating revenue and operating income above, partially offset by an increase in investment gain. (Net income earnings per share 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 Nine Months Financial Review

• Total revenues for the nine months ended December 31, 2015 were $21,288,945, compared to $20,185,553 for the prior-year period. An increase in family entertainment revenue for the nine month period over the prior year offset less revenue in the insurance distribution and land improvement businesses.
• Net operating revenue (gross profit) was $5,835,784, which compares to net operating revenue of $5,451,598 in the prior-year fiscal period. Decreases in net operating revenue in the land improvement and insurance distribution businesses were offset by an increase in the family entertainment business.
• 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 operating expenses such as compensation, rent, amortization and depreciation expense relating to the Company’s addition of six family entertainment centers since January, 2015, that were not included in the prior year period.
• The Company reported an operating income of $127,296 for the nine months ended December 31, 2015 compared to an operating income of $1,266,121 for the prior-year period, due to the aforementioned factors discussed above.
• Operating EBITDA (excluding investment revenue) for the nine months was $765,246, as compared to $1,742,044 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 nine months ended December 31, 2015 was ($449,297), as compared to a net investment loss of ($137,031), for the same nine months of the previous fiscal year.
• Net income (loss) for the nine months ended December 31, 2015 was ($274,557) loss, or ($0.04) per share, compared to $753,496, or $0.11 per share, in the prior-year period. The net loss for the nine months ended December 31, 2015 was the result of the above mentioned factors including increases in operating expenses outpacing increases in net operating revenue and an increase in investment loss versus the prior year.

Balance Sheet Information

• TMA’s balance sheet at December 31, 2015 reflected cash and cash equivalents of approximately $5.5 million, working capital of $12.2 million, and shareholders’ equity of $12.3 million; compared to $5.7 million, $10.2 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 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 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.

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.

Note – Operating EBITDA (excluding investment portfolio income)

Fiscal year 2016 third quarter operating EBITDA (excluding investment portfolio income) was determined by adding fiscal year 2016 third quarter operating income of $204,763 and depreciation and amortization expense of $237,759 for a sum of $442,522. Fiscal year 2015 third quarter operating EBITDA (excluding investment portfolio income) was determined by adding fiscal year 2015 third quarter operating income of $340,528 and depreciation and amortization expense of $155,525 for a sum of $496,053. The Company elects not to include investment portfolio income because the Company believes it is non-operating in nature.

Fiscal year 2016 nine months operating EBITDA (excluding investment portfolio income) was determined by adding fiscal year 2016 nine month operating income of $127,296 and depreciation and amortization expense of $637,950 for a sum of $765,246. Fiscal year 2015 nine months operating EBITDA (excluding investment portfolio income) was determined by adding fiscal year 2015 nine months operating income of $1,266,121 and depreciation and amortization expense of $475,923 for a sum of $1,742,044. 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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