ErnieBilco
10 years ago
FY 2015 Second Quarter Financial Highlights (all comparisons to the prior year period)
? Revenues were $6,236,435 compared to $6,261,436, largely due to lower construction revenues versus the
prior year period
? Net operating revenue (gross profit) improved to $1,722,337, compared to $1,721,114
? Operating income was $177,967 compared to $171,598
? Operating EBITDA (excluding investment portfolio income) was $333,253, compared to $332,927
? Net income (loss) of ($36,926), or ($0.01) per share, as compared to net income of $187,447, or $0.03 per
share (all per share values were adjusted retroactively for stock split at February 28, 2014)
? Subsequent to end of the quarter, the Board of Directors authorized a $0.21 per share cash dividend for
shareholders of record on December 12, 2014, to be paid on or about January 30, 2015, representing an
increase of 16.7% over the previous annual cash dividend after giving effect to the 2:1 stock split distributed
on March 28, 2014
St. Louis, MO, December 19, 2014 – The Marketing Alliance, Inc. (OTC: MAAL) (“TMA”), today announced
financial results for its fiscal 2015 second quarter and six months ended September 30, 2014.
Mr. Timothy M. Klusas, TMA’s Chief Executive Officer, stated, “We were pleased with revenue increases this
quarter in our insurance and family entertainment businesses. However, revenue growth in our land
improvement business was challenged by low crop prices. We felt like we continued to take steps to reduce costs
and operate more efficiently, despite the setbacks of low crop prices which drive the demand for our services.
TMA remains committed to growing each of our lines of business while continuing to explore opportunities to
increase returns for our shareholders.” 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: “We are pleased with our results for the quarter, as we saw an increase in
commission revenues this quarter over the prior year period. We commend our network of brokerage general
agents, as they have continued to have to adapt to changes within the industry throughout a protracted lowinterest
rate environment. Low interest rates have the general effect of making some life insurance products
more expensive causing an environment where product prices are increasing, or some products even
discontinued. Also, annuity and long-term care products could appear less attractive to consumers than in
past periods of time when interest rates were closer to historical averages. However, we are continuing to
work with our distributors to ensure that they have top-notch access and information on a broad spectrum of
insurance products offered by our carriers.
? Earth Moving (Land Improvement – Construction): “Market conditions continued to impact our results for
the quarter, as low prices for soybeans and corn have caused many of our customers to defer or alter
purchases of land improvement and crop yield-improving services. We have continued to evaluate ways to
more efficiently utilize assets in this operating environment, including expanding our market by geography
and areas served as well as looking for opportunities to reduce costs.
? Family Entertainment: “We are pleased to report an 18% increase in year-over-year revenue for business. We
believe the increase is attributable in part to internal improvements that the Company has made since we The Marketing Alliance, Inc.
Page 2
December 19, 2014
acquired these facilities in September 2012. These improvements included increased marketing efforts to
expand our customer base and purchasing additional video game machines for our customers to enjoy during
their visit. ”
Fiscal 2015 Second Quarter Financial Review
? Total revenues for the three-month period ended September 30, 2014, were $6,236,435, as compared to
$6,261,436 in the prior year quarter. The decrease was due to a $299,972 decline in construction revenue
which was partially offset by an increase of $220,569 in commission revenue and a $54,402 increase in
revenue from the two family entertainment facilities.
? Net operating revenue (gross profit) for the quarter was $1,722,337, compared to net operating revenue of
$1,721,114 in the prior-year fiscal period.
? Operating expenses decreased by $5,146 for the fiscal 2015 second quarter as compared to the prior year,
due in part to less compensation expense for the quarter versus the prior year. The decrease in compensation
expense was offset by increases in administrative and professional related expenses from the prior year, of
which approximately $50,000 of the increase in this quarter was a unique one-time expense related to a nonrecurring
project.
? Operating income was $177,967, compared to operating income of $171,598 reported in the prior-year
period, resulting from similar levels of gross profit and overall operating expenses in the prior year period.
? Operating EBITDA (excluding investment portfolio income) for the quarter was $333,253 compared to
$332,927 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 fiscal 2015 second quarter was ($36,926), or ($0.01) per share, as compared to net
income of $187,447, or $0.03 per share, in the prior year period despite nearly the same levels of operating
income. The net loss for the fiscal 2015 second quarter was the result of the performance of the Company’s
investment portfolio as compared to the same period of the prior year. (Operating EPS and Net EPS are stated
after giving effect to a 2:1 stock split for shareholders of record as of February 28, 2014 and paid March 28,
2014 for all periods. Shares outstanding increased to 6,024,200 from 3,012,100 with this stock split and have
been retroactively adjusted to account for the split.)
? Net investment loss, net (from investment portfolio) for the second quarter ended September 30, 2014 was
$247,256, as compared to net investment gain, net of $148,104, for the same quarter of the previous fiscal
year. The decrease was largely due to increased realized and unrealized losses on investments during the
period as opposed to realized and unrealized gains in the prior year period.
? Capital expenditures were approximately $308,000 in the quarter and comprised primarily of the purchase of
real estate for the construction / land improvement business of roughly $240,000. Rental expense (replaced
by this purchase) for the facility that housed the construction / land improvement business was $60,000 in the
prior fiscal year. Most of the remaining purchases were for new video game machines in the family
entertainment business, completing projects at those facilities.
Fiscal 2015 Six Months Financial Review
? Total revenues for the six months ended September 30, 2014 were $12,785,973, compared to $13,250,497 in
revenues for the prior-year period. Construction revenues were $644,603 less than the prior period, although
the decrease was partially offset by insurance distribution revenue increases and family entertainment
revenue increases. The Marketing Alliance, Inc.
Page 3
December 19, 2014
? Net operating revenue (gross profit) was $3,747,551, which compares to net operating revenue of $3,831,233
in the prior-year fiscal period.
? Operating income was $925,593 compared to $754,940 for the prior-year period, driven mostly by a $254,335
decrease in operating expenses. The decrease in operating expenses was due to declines in compensation,
office, and payroll related expenses.
? Operating EBITDA (excluding investment revenue) for the six months was $1,245,991 versus $1,067,993 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, 2014 was $490,825, or $0.08 per share, compared to
$477,819 or $0.08 per share, in the prior-year period.
Balance Sheet Information
? TMA’s balance sheet at September 30, 2014 reflected cash and cash equivalents of approximately $5.5 million,
working capital of $11.5 million, and shareholders’ equity of $13.3 million; compared to $5.5 million, $11.3
million, and $12.8 million, respectively, at March 31, 2014.
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
FrankLind
14 years ago
The following company is basically undiscovered.
Investment Highlights.
* ROE of 40% and ROE of over 100% excluding excess cash.
* Tripled earnings over 5 years [.33 per share in 2005 to .99 per share 2010].
* Wide Economic Moat.
* Fully audited by top auditing firm.
* Current PE of 9.
* No debt
* Dividend yield of 2.8%
* Dividend increase from 15c per share in 2005 to 34c per share in 2010.
* No direct competitor
* Company has reduced share count over the last 5 years.
* Actionable idea for small investors with a trading volume of $7000 per day.
* Strong future growth opportunities.
The strong economic moat is a network effect - which is one of the strongest kinds of economic moats, ensuring a sustainable competitive advantage.
This company is fully reporting and audited. It is audited by the 20th largest auditor in the world. The company is ordered by UHY, LLP which is the 20th largest worldwide independent accounting Association. According to capital IQ, UHY audits 74 companies in the US.
The name of the company is "The Marketing Alliance", or TMA. It trades under the ticker symbol MAAL. Introductions are available here
www.themarketingalliance.com/pdf/...
and here
http://www.themarketingalliance.com/pdf/...
What does it do?
TMA provides two essential services to small independent insurance agents.
1. It aggregates small insurance agents into one buyer to negotiate with the insurance carriers so the small insurance agents have more buying power and can negotiate better terms i.e., commissions for selling the carrier's insurance, when they purchase insurance product from the insurance carrier. Examples of insurance carriers are Prudential or ING.
2. It provides back office support and automation systems for the small insurance agents. It also takes charge of marketing the product on behalf of the insurance agent. These both save costs. TMA, by aggregating these costs, charges a small fee but achieves econmies of scale.
So, if you are a small insurance agent it really benefits you to belong to this network.
1. You can negotiate higher commissions on the insurance that you sell because TMA represents you along with other insurance agents in one large pool.
2. You can save money on back office requirements because TMA handles this for you.
3. TMA is a completely independent organization. It does not have its own set of agents as a side-business which are competing with you.
4. The fee that TMA charges you is less than the extra money you make in commission from TMA negotiating you a better deal with the large insurance carriers and the money you save on TMA running your back-office requirements.
The network effect is very strong. The bigger that the network gets, the greater the benefit to insurance agents - and the more difficult it is to leave. A growing network gives more leverage to TMA, more bargaining power, and greater and greater profits. So, the network creates a captive agent and better and better margins for TMA.
This has been borne out by the results.
If you are an insurance carrier, TMA also helps you.
How?
1. By aggregating small insurance agents you only have to deal with one customer for your insurance product.
2. By supporting the profitability of the small insurance agents, TMA ensures that more of your insurance product can reach the market.
3. TMA provides new sales outlets and markets for the insurance carriers.
4. Carriers want the fixed cost distribution to be variable. In other words, they only want to pay the insurance agent can really produce.
How has this translated into the financials?
Note:TMA invests its considerable excess cash in the equity market. Therefore, its net income is sometimes distorted by gains or losses in the equity market. So the most appropriate measure of true company profitability is its net operating profit after tax. [NOPAT]
This has grown from roughly $666,000 at the end of 2005 to the current trailing 12 month figure of $2.5 million. This is an approximate growth rate of 29% per year over the last 5 years.
The majority of this growth, although not all of it, has come from margin expansion from the fixed cost nature of the network adding more agents.
Revenue [3/31 2006] = 15.9 million Revenue [Dec31 2010] = 20.9 million
TMA does not add all agents to its network. It only allows profitable agents to join. Unprofitable agents are removed.
Competition.
There are no direct competitors.
However, one could expand the competition to include tradtional larger brokers and other financial distributors such as - Aon Corp. and Brown and Brown. TMA compares favorably to these in terms of profitability and valuation.
Strategies for Future Growth.
When you have a strong economic moat, you basically have options. It is not just about lowering costs and trying to out-innovate your competitor. TMA has multiple directions in which it can grow. The existence of the network moat gives it a platform to explore ways to increase high-margin revenue. They have already begun an annuity line in addition to life insurance.
The following are some strategies that TMA plans to, and has already begun, to use.
Addition of More Carriers (Suppliers) [Revenue Growth]
? TMA has begun to recognize measurable revenues from the addition of new
carriers. It typically takes 18 to 24 months for new carriers to be profitable as it takes a lot of time for the agents to fully understand and market the products.
? Will continue to pursue new carriers in order to maximize revenues, attract new
agencies and fuel growth
Expansion of Services Provided
? Through the addition of services such as TMA’s annuity business and business
service center based in Omaha, NE, as well as the expansion its product matrix,
brokers are encouraged to drive more business to TMA
Incentive Plan for Brokers
? Flexible program where TMA agencies can deliver specific insurance products and
services tailored to the needs of the customer
? Management feels that this program has gained traction by increasing TMA’s share
of business with existing members and encouraging more profitable prospective
agencies to join the Company.
In fact, the latest quarterly earnings report makes strong mention that one of the main drivers of increased operating income has been some of the agents utilizing the additional services of the TMA network.
Valuation
Clearly, a company of this quality, with this growth should be trading at a much higher ratio than 9 times earnings.
I use a forward valuation method to value TMA.
First, take the current trailing twelve months earnings. [in this case NOPAT]
NOP excluding equity gains or losses.
= NOPAT ttm [after tax] $2,508,039 / 1,901,578 shares = $1.319 / share
At the current price of $12, this equates to a current NOPAT ratio of 9.1.
Let takes some examples to project a 5 year price target [the dividend which will increase returns further is ignored here. Neglible share dilution is also assumed, and in fact the share count has been reduced over the years.]
1. 5 year compounded growth of 8%. Future NOPAT ratio of 12.
= 1.319 x 8% over 5 years = 2.124.
2.124 x future NOPAT ratio of 12 = $25.49
$25.49 compared to $12 now is a double over 5 years.
2. 5 year compounded growth of 12%. Future NOPAT ratio of 14.5
= 1.319 x 12% over 5 years = 2.54.
2.54 x NOPAT ratio of 14.5 = $36.83.
$36.83 is slightly more than a triple over 5 years.
3. 5 year compounded of growth of 16%. Future NOPAT ratio of 16.
= 3.017 x 16% over 5 years = 3.018
3.018 x NOPAT ratio of 16 = $48.29
$48.29 is slight more than a quadruple in today's price over 5 years.
My opinion lies somewhere between Scenario 2 and 3 [as a conservative assumption given past earnings growth and the quality of this company]
Risks
The risks with TMA, in my opinion are not insignificant, but are quite manageable.
1. Disintermediation.
Increasing internet distribution of insurance is possible. but with a 'high touch', one -time expensive purchase such as life insurance, clients normally prefer having a agent explain the options. Furthermore, life insurance policies require medical documentation and verification. Actually, TMA's back office supports these tasks.
2. Key Man risk.
The CEO Tim Klausus arrival at the company coincided with better performance. Losing him would not be helpful.
3. Overall, the number of new individual policies being written is in decline - from an average of 17000/year in 1980 to 10800 in 2007.
Mitigating this - a) the face value of each policy has been rising.
b) TMA is not an insurance agent but an aggregator of the best agents taking some cream off the top.
c) TMA has entered and will enter other business lines e.g. annuity.
4) Significant excess cash allow for the possibility of misallocation of capital. I would argue they have having significant cash is a lovely problem to have! They have recently made a new position especially devoted to how to invest all the extra cash they have.
5.) The overall agent base is aging.
Disclosure.
I am long MAAL.
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