Below is a follow-up interview that my colleague, Matt Miller, conducted with Tim Klusas, president of Marketing Alliance, Inc. (MAAL.PK). The first interview Matt conducted with Klusas occurred in October 2009. I also wrote an article for Seeking Alpha mentioning Marketing Alliance last year. As of the time of writing, Marketing Alliance remains the largest position in the fund we co-manage at Chanticleer.
The following is the transcription of a phone interview that took place on April 25, 2012. Please see the end of the interview for important disclosures.
Matt Miller: Can you provide us an update on the Marketing Alliance business? We last spoke in October 2009 and since that time revenue (on a trailing-12-month basis starting with the June 2009 quarter) has grown 4.4% from $22.5 million to $23.5 million and net operating revenue has grown 38.6% from $5.7 million to $7.9 million. What is driving this performance? Why might revenue not have accelerated more coming out of the recession?
Tim Klusas: Let's talk about some of the reasons why it changed first and then we can dive into why it changed more or less than some expected. As we've talked about in the past, we look at our business as a network-based distribution company. The improvement in the results is in part due to adding more products and services and more productive distribution points throughout the network. Adding more parties and products into the network leverages our costs, gives us economies of scale with our infrastructure, and allows us to do additional projects.
As a distribution company we always have tried to run the business in the leanest way possible so we may not have had a tremendous burst in profitability from slashing expenses. While trying to be lean, we also are re-investing in the business through the income statement [increasing current expenses such as headcount and technology] by investing in our human resources to grow. This could lead to over-burdening the business in the short-term but we think the long-term payoffs are worth it.
In terms of why the change or improvement wasn't as robust as others may have thought, I think we may also have to look at some of the things that have happened on a macro-economic level since then and keep in mind the life insurance industry, in my opinion, has historically been a lagging indicator. For example, in the financial crisis, what we saw among our supplier base (the insurance carriers) was a competition for capital. In some cases products were pulled off the shelf, discontinued, or in other cases products were amended to where they weren't as attractive either for consumers or distribution. There were various reasons for this, not the least of which was lack of availability of letters of credit for insurance companies' reserving needs, or low interest rates. Both of these affect the ability of insurance companies to make a profit on premiums they carry until claims or the ability to offer products with robust guarantees, or funded level premiums, on new policies. While GDP was recovering and positive again since 2009, the life insurance carriers and overall industry, in my understanding, had to address some of the side effects of stimulus mentioned earlier.
So one of the unfortunate side effects of this for Marketing Alliance is we had to look at our supplier base and make sure we had product to sell and could avoid stock-outs where product was not available. Because our revenue is largely based on new sales we had to make sure we had product to sell. What you see are things like, as an example, us maintaining more carrier relationships than we normally would. This has an effect of diluting some of our results. Clearly we would like to concentrate our efforts to maximize our relationships with our suppliers, but we had to make sure we had an adequate supplier base and we always had product to sell. So when I look back on where we have been since 2009, I am actually quite pleased because there has been a lot of havoc in the financial services industry since then as you can tell. I am pleased because we've tried to mitigate our risk in terms of suppliers and having more products to sell, but of course the side effect of that is we are carrying more suppliers than we have in the past. And, of course, we continue to invest in the business for the long-term.
MM: Has the number of distribution points grown then since we last spoke in 2009?
TK: Probably, but certainly we feel there has been growth in terms of quality. We used to focus on the number of distributors but have found that could be misleading. We run the business on a series of metrics and we try measure activity and what we find is that some of the metrics are useful and some are just noise. For example, if I told you I used to have 100 distributors and now I have 300 distributors but by the way revenues are up 5% and operating profits are down 50% are you happy or sad? Clearly you are sad. But if I told we've gone from 100 distributors to 80 but by the way we got rid of 50 who were really not performing and in their place we added 30 who are just stellar and by the way revenues are up 15% and operating profits are up 150%, are you happy or sad? Clearly you are happy. Neither of those numbers of distributors are good indicators; it really comes down to how productive the distributors are on a marginal basis. That is probably the more useful metric than just how many. Our goal is to increase the quality of distributors, not quantity, and find that benefits everyone from us to suppliers to other distributors.
MM: Are you seeing any of these larger macro stresses you shared relating to your suppliers subsiding a bit?
TK: What we hear from our suppliers is that the situation with letters of credit and the reserving solutions to carry those reserves profitably has improved. The letters of credit are more available, the pricing seems better. The larger issue right now seems to be the effect of low interest rates, but not just low interest rates today, but the extended forecast for low interest rates into the future. Where this comes into play for the carriers is when they try to reinvest premiums they receive on insurance policies. How do they find adequate risk-adjusted yield and earn a profit and maintain guarantees and minimum performance levels of those life insurance policies or annuities? And I think that is a trend that is going to continue for a while based on what they tell me.
MM: While we've already addressed much of this next question, could you provide us with an update on the overall life insurance and annuity space? Is there anything you would like to highlight? There was some disruption during the financial crisis. What are some of the things that have transpired since that period?
TK: The only thing I'd like to add is to mention there are many other things that affect the demand for life insurance and annuities. It is helpful for someone like me who has been in this business for seven years to talk to some of the board of directors and customers who have been in the business for a long time. And some of the things I've heard from them are things like there have always been big issues to deal with in this business whether it was triple-x reserve changes or it was the advent of universal life or it was the demutualization of some of the companies or how the career agent system has changed. There has always been something hanging over the business, and speaking specifically with some of the folks who have been in the business for a long time, they take comfort in the fact that there are a lot of entrepreneurs in this business and that somehow we'll figure it out and life insurance is a need that needs to be met and we're in the best position to fulfill that need.
MM: What is the breakdown of the core business, in terms of revenue and net operating revenue, between life insurance and annuities? What are the relative growth rates of those two businesses compared to the overall growth since we last spoke?
TK: Our larger business in terms of revenue is still the life insurance business. Life insurance distribution is where the business started and it has historically been the source of our current customer base. As far as the relative growth rates, if you could tell me what the interest rates and letters of credit situations are going to be going forward, I'd have a better answer for what the outlook may be between the two. Our goal has always been to make sure we're flexible to serve either purpose, in other words provide either life insurance or annuities no matter what the economy throws at us. As an example, in the annuity business, this has been a challenging time because interest rates have been so low from a historical perspective. However, when you look at interest rates that annuities offer compared to things like bank certificates of deposit - they're actually not so bad. This is why we are active in both life insurance and annuities, and to gain leverage from the fact that the same agent often sells both kinds of products.
[In response to a follow-up about how the annuity business might perform in an environment where rates are rising]: A lot of it depends on the speed of change. As an example, if say we were in a very high interest rate environment historically speaking and bank deposits as a competing product were much lower than what annuities products offered and the outlook was for rates to go down, then clearly annuities would be in a fantastic spot. And I compare that to a an environment where interest rates are at a historic low, and some believe a catalyst could cause interest rates to increase rapidly Not a good time to look for a multiyear guaranteed product. The argument is similar to what I hear about buying bonds right now.
We have been able to use both product lines to bring in others. As an example, we've been able to attract businesses whose first product is annuities and get them further in the life insurance business, and likewise recruit life insurance agencies who would now like to sell annuities because the intersection of their agents selling both products is there, and for life insurance agencies, as an example, now they have a way to keep that producer in house where perhaps they didn't before and the producer was going somewhere else to sell annuities, and it was only a matter of time before that producer could be asked about their life insurance sales by their annuity provider.
MM: Please share with us your thoughts on the future of the life insurance distribution space. What are some of the new approaches that you are keeping an eye on as threats and what opportunities do you see for the core life distribution business to capitalize on in the coming years? Some of your competitors have been investing in technology efforts over the last several years, including American General Life Companies' "ExamRight" and Crump Life Insurance Services' "RiskRighter." Is that something you see Marketing Alliance doing?
TK: The issues confronting the space really aren't new. As an example, where will the new producers come from? Where will life insurance be sold? One of the trends that we've seen and tried to participate in is looking outside the traditional agent base. As an example, selling life insurance in other venues rather than through a career life insurance agent where life insurance is the only product they sell. Some examples of this are selling life insurance in partnership with financial advisors, wealth managers, perhaps private wealth managers at banks and then also property and casualty insurance agents and other allied professionals like CPAs and even attorneys. What we find is life insurance is being sold more among this non-traditional group, that being the space outside the traditional life insurance agent.
What we're trying to do at Marketing Alliance is use our infrastructure and use our national breadth to put each of our agencies in the position to take advantage of this trend. What that means is approaching, for instance, national networks of financial advisors or wealth managers and showing them, through a standardized approach and a highly centralized infrastructure, we could control the experience so that it is the same in Omaha as it is in Boston or Charlotte or Houston or Los Angeles. What we are trying to do is bring our General Agents into this distribution to increase the opportunities for them and also to find a growing market where they can sell life insurance, annuities, long-term care and other financial products. That is what we see for movement in the future of the life insurance distribution space. And that is some of the ways we've tried to capitalize on it. And we think we have a unique way to do it through our infrastructure and our national network.
When we look at some of the things our competitors have done, especially in the realm of technology, it presents an interesting situation. As an example, there are a myriad of technology products and vendors that offer products in all parts of the life insurance selling process. The ones that you mentioned here are really just two of them but there are many, many more to follow. The dilemma for us is everybody has their own favorite. As an example, if you were in a room with all of our distribution General Agents you would ask who is in favor of product A and maybe a third of the room raises their hand, who is in favor of competing product B and another third would raise their hand and who is in favor in product C and another third would raise they're hand. And of course a couple of others would have their own other favorites beyond the first three.
What we try to do is make sure our platform is open to all of them and we've been able to do that, except of course for our competitors' products. There are other products that do similar things to what you've described here. They could either be supplier specific, in other words carrier specific, or they could be needs specific, things like underwriting, analytical tools, or financial needs tools, things like that. As far as what we would do with it, our philosophy has been to provide what our General Agents want, which forces us to make sure our platform accommodates all of them. It is hard to see us investing heavily in a technology because it changes so quickly and it would be hard to find one that encompasses everybody's wish list. So I guess our goal would be to sit back and watch what happens with some of these products and make sure our platform is open to all of them or as many as possible.
MM: Do you worry at all that these types of products could displace your platform so to speak, despite the fact that you try to remain open to each of them?
TK: Not from what we've seen. It's a catch-22 for the providers of some of these new products. As an example, they want to have as broad an audience as possible. So they want to make sure they're inclusive at the same time they also want to be proprietary or put proprietary things in them, which seems to be a competing agenda. From what we've seen, most of the technology product providers and vendors have tried to make their products as inclusive as possible. Frankly, we've only stood to benefit so far.
MM: One of your competitors, Crump Life Insurance Services, was recently acquired by BB&T Corporation from J.C. Flowers & Co. as part of a $570 million deal at a reportedly 1.9 times revenue. First, what did you think of that type of valuation? Second, what do you think this means for the competitive landscape in your core business?
TK: We did see the valuation and the transaction cross. We congratulate them on completing the transaction. Hard to really comment specifically on the valuation simply because I haven't seen the public filings on the transactions with the detail I would need to formulate an opinion. Clearly, when we saw the valuation though, we were encouraged. I think it speaks to our space, I think it speaks to the attractiveness of having a platform. I think it speaks to some of the places where our business could go as potential.
As far as how that affects the competitive landscape. Crump has always been a formidable competitor. There is no reason to think that would change. The interesting thing is whether being part of a bank affects their business with competing banks and institutions now that they are owned by a competitor in a time where insurance distribution is forming alliances with those entities.
MM: One of the significant items of note since we last spoke was obviously the company's 2011 acquisition of JDC Construction. Could you provide the thesis for that investment and an overview of that business? As we understand it the company was looking for over a year for an acquisition, why was JDC the right choice?
TK: Let me talk a little bit about our decision process and our thesis and then why in the end JDC. Our intent is to always look at the capital allocation decisions from the shareholder point of view and then try to make the best decision -- which could be a lot of things, from distributions through dividends and share repurchases, reinvesting in the insurance distribution business more than we currently do in a way that we thought could bring us more optimal returns, or it could be going outside of our current business where we thought we might deliver the same returns.
We look at new projects that require capital like the marginal investor in The Marketing Alliance who is buying a company with, as you saw last year, over $4 million in pre-tax operating profit divided by approximately 2.1 million shares at so many dollars a share, and from that you could calculate a rate of return. And further I would make a few adjustments to determine a cash flow return, but for simplification purposes let's just look at operating profit over the market cap. So our goal for capital allocation was to look for other projects that could deliver that return or greater. And so we looked around, and this was a process that went on for almost two years, and what dropped out of that process was a business that we found that had a lot of the criteria that we felt would enhance the odds in our favor. Things like, a durable business model to grow upon, things like a business that we think generally will grow into the future due to economic trends, and also a business we thought we could get the types of returns that the marginal investor could get by investing in Marketing Alliance stock.
And so what came out of it was a business in the agricultural realm which generally installs drainage systems and erosion control terraces for farm fields. These services increases the yields for crops in those farm fields and in some case extends the growing season by allowing the fields to dry out faster to get equipment in for planting or harvesting. It also provides more defenses against erosion and, in short, improves the farmer's investment in the field by increasing yield and productivity. This was a business that looked appealing to us and one that we thought we could purchase the assets and may be able grow and deliver the aforementioned sorts of returns. It just happens to be in the agricultural space and the excavation business. It wasn't that we set out to own something in that space specifically, but when we applied our criteria, this was what dropped out.
And it wasn't really the case that this was the right choice because that assumes that we had to do something no matter what. That wasn't the case at all. We could have just sat on our hands and continued to do what we did and we would have been perfectly fine doing that had that been what the situation presented. We thought this was a chance to grow the operating earnings and cash flow of the company. We thought it was a chance to deliver even more enhanced shareholder value and it gave us a chance to grow the company for shareholders and so we made the decision.
MM: I think you may have been alluding to the possibility of additional acquisitions, add-on acquisitions, which could grow that business. Is that right?
TK: I think there definitely are. One of nice things about the business is that it seems to be extremely fragmented. And that does allow us the opportunity to put more capital to work there using the same sort of criteria, a chance to increase the return for that shareholder who is approaching Marketing Alliance stock. Also, we're looking for something that is durable and what we think could be sustainable and a chance to grab desirable returns in the future.
MM: With this acquisition, the model for Marketing Alliance appears to be changing. Can you provide your vision for the company in five to 10 years? Are you attempting to build a diversified holding company, something perhaps akin to a Berkshire Hathaway? Are there other models out there that you hold in particularly high regard?
TK: We continued to build the company over the last five or six years. It is a wonderful company with distributors and customers we admire and we try to operate the business like our life depends on it - simply because for many of our customers we know their agencies are the largest asset they have. We have invested in the business to grow and increase its attractiveness to distributors, but have resisted the feeling that we have to put capital to work now or lose it. We feel that being compelled to do so could lead to destruction of value.
We continue to look for ways to add value in the current distribution business, but rather than feeling compelled to invest we opted to also look for ways to put capital to work in other areas that might result in the same sorts of returns, even if it is outside of the insurance distribution business. As an example, if you could equate what we are doing to finding another asset that generates cash, a "cash machine," what we are trying to do is use one cash machine to develop other cash machines. By cash machines, I mean one that generates cash returns for our shareholders. And we look for characteristics that we see in the current insurance business and try to look for some of those characteristics in other businesses to try and build those up as well. If we do our job correctly, what we'll have in the future is a few cash machines that throw off returns for shareholders and generate excess cash that we can use to go find others. I guess this is why you mention Berkshire Hathaway as a comparison. And so my vision for the company would be to have various machines that generate returns for shareholders in the form of cash that we can use to generate even more machines for shareholders that deliver cash.
And when I look at different models out there, you mention Berkshire Hathaway but I also point to Leucadia and Teledyne as other examples. Leucadia comes to mind where they, in my interpretation, go anywhere to get a cash return for the shareholder. That is what we're really trying to do. We're more concerned with the cash return than we are whether it is a pretty business, is it a popular business or what the public opinion poll says about this business or that business. Our concern is getting that cash return. I also mention Teledyne because in addition to being prudent capital allocators we also strive to be good operators, where we can introduce internal controls and planning to help a business achieve its potential.
MM: The implication from your answer might be that there might one day be more than two "cash machines" as you put it in the future. Is that a fair assessment? Are there any areas that you would foresee you surely wouldn't go? Would you be willing to use debt?
TK: I think that is true if those opportunities present themselves and whether we can put more capital to work than we already are in the current businesses where we operate. We would like to have … one is better than none, two is better than one and three is better than two, as long as they fit our criteria and are generating cash. We intend to seek other ones. We don't really have a number in mind we are striving to meet. We may find a few follow-ons that we could do in this new area (agriculture). We may find a couple follow-ons we could do in the insurance business, but they have to make good sense for the shareholder in terms of what would have to pay to get a cash flow return. If that means we have to go in other areas I think you'll find us going in other areas. If that means we can continue to put money to work in areas we have and we felt like it fulfills our investment thesis and gives us our cash flow return, then that's what we'll try to do. We're not really committed to a specific number as much as we are trying to evaluate the situations in front of us and put capital to work in the best ways we can.
One of the reasons we've maintained our cash balances and liquidity is to have the ability to do things that may not benefit the short-term but have a good payoff in the long term. With interest rates being so low I could see where we could utilize a little bit of debt, but I couldn't see making a large bet with debt at this point. We might look to optimize our capital structure with some low interest rate debt at some point or terming out our line of credit that we've used as an example. One of the nice advantages we have is being able to look at businesses that are small that we could add in small pieces rather than make the "bet the company" type of bet with debt.
MM: In this new era for the company, how are acquisition decisions made and who are the key decision makers? Can you provide insight into those people, besides yourself?
TK: For the initial part of the process, which is to look for businesses that possess the characteristics that could give us the types of returns we're looking for, we brought in a gentleman about two years ago. Mike [Johnson] is someone I met at business school at Cornell who was one of the smartest persons in our class. When we were looking for someone to pursue new businesses and acquisitions, I contacted Mike to see if he was interested. Mike's background and mine are somewhat similar, in that Mike was working on corporate development and strategy at Rockwell Collins. What Mike does is a pretty comprehensive search within a predetermined geographic area. We don't want to be all over the place, we want something we can keep an eye on and stay up to date with management. Mike looks for companies that fit the criteria we are looking for, like the ability to give us the desired cash returns for shareholders. Preferably we want a situation where management is in place or staying because that gives us the knowledge of the business we need to run the business, especially if it is outside of insurance distribution. When Mike finds something interesting, we do our diligence on it with our Treasurer and then we decide whether we want to present it to the Board to move forward. Mike, me, and our Treasurer are the three persons most involved in the deal making process as well as integrating the business.
MM: Is it possible to share with us what the company's criteria is for breaking out the two businesses into separate segments for reporting purpose? Since the acquisition of JDC, the company has reported revenue and gross profit by business, but shareholders have no way of knowing operating income. Since these are two very different businesses, shareholders should be able to examine each individual business's performance, but as of yet that is not possible.
TK: The situation we have is where we've got only some discernible revenues and expenses by business segment. At the top level revenue is either construction revenue or is it insurance distribution revenue. Then we've got direct expenses where it's clearly either construction expenses or insurance distribution expenses. When you start to get down to the SG&A level, because of what we've done and have continued to do with the integration to roll in a system of internal controls throughout the business and because of the integration itself, we're spending quite a bit of time and resources trying to integrate the business into the way we do business and take it from a small business to one that reports results publicly. There is a lot of expense allocation that goes on and we've always tried to maintain that we want to give an investor the most appropriate look at our business without trying to give them anything that could be misleading. And we feel that if we were to undertake a significant exercise of expense allocation, you could see a lot of movement in that SG&A category and calling things one-time or extraordinary expenses and the like, that unfortunately could be misleading.
Our solution to this has been to give you what we know is discernible for sure and then give you the SG&A in total so as an investor you know what you are getting in the end. At some point we might break that out when it becomes more discernible. In the mean-time, because of what we are doing with the integration, because of what we are doing with sharing of expenses, sharing audit costs, sharing legal costs, sharing board costs all of these things we've chosen to lump the SG&A together rather than come up with some elaborate SG&A allocation exercise that could lead someone in the wrong direction on the profitability on each of the business. That is why we've done what we've done so far. For right now at the expense of not wanting to mislead anyone we've kept them all together.
MM: What is the company's philosophy as it relates to your investment portfolio? Are there certain guidelines around allocation?
TK: The company's philosophy is to maintain adequate liquidity so we can make decisions for the long-term benefit of the shareholder. We believe liquidity is an advantage and allows us to undertake projects that others without liquidity could not. The investment portfolio is the portion of our liquidity that we try to reach for a yield greater than cash offers, but at the same time it remains very liquid so that we could turn into cash if we needed to be so in short order. I think it's probably a fair criticism to say we have been too liquid and I understand that, but it sure beats the alternative.
Historically we've tried to invest in liquid instruments -- things like stocks and bonds, things like money markets and cash, treasuries and in some instances preferred stocks and other instruments like that. We have capital that we want to try and invest while at the same time maintaining lots of liquidity to ride out some of the variability of the business, the financial crisis, the credit crisis, any and all of these different elements and risks. We want to be sure we have the cash balances and liquidity to ride through it. The last ten years happened to be a decade where stock market returns were near zero and in some cases depending on a more compressed time frame, quite negative. This experience reinforced our decision to pursue more cash machines where we could maintain more control and influence by being more active investors. So while we've maintained some investments in public securities what we have been trying to do, and we've attempted to communicate this in the past, is reduce risk. So we've got quite a bit in money markets and fixed income securities and what we do in equities and preferred stocks is through third party vendors, i.e. a fund at Morgan Stanley or a small fund, hedge fund, another fund at Robotti and Company, etc. It is not that we have a particular investment style or theme, we're just trying to improve our return with our liquidity reserves and unfortunately we've been in an environment where the returns, historically speaking, have not been attractive.
We feel we have adequate liquidity. I think right now we're trying to park it somewhere to get a decent return on it because cash returns are near zero. We don't really feel constrained to operate according to a formula. I think if equities had a really big run I think we'd probably sell some of it, whereas if equities were to drop we'd probably look for opportunities to put more money to work. It just depends. We really don't manage to a formula other than to maintain liquidity.
MM: In terms of capital allocation, two questions. First, the company has a buyback authorization for 200,000 shares or nearly 10% of the outstanding shares. As of your last report it does not appear the company has executed on this. While we recognize the shares of Marketing Alliance are not very liquid, what is the company's plan for this authorization? Secondly, with a change perhaps in the tax treatment of dividends approaching and the company's developing focus on diversifying the business, does the company expect to continue with the aggressive approach to dividends that it has in the past?
TK: My crystal ball is in the shop so it is hard for me to predict tax policy at this time when it comes to the dividend. Our board is very serious about rewarding the shareholder. Our board likes the fact that we've been able to increase that dividend by twenty-some percent each year in the last five or six years. We are proud of that. I anticipate that we would look for a similar type of strategy as far as distributions to shareholders, but that is a board decision not my decision as CEO of the company, or as one board member. As far as what we'll do with the dividend in regards to tax policy unfortunately we'll be presented with a situation where we won't know the tax policy until right before that decision must be made. I have the confidence we'll make the best decision we can with whatever tax policy confronts us at the time of that distribution which historically has been at the end of the calendar year. The situation is compounded by the fact that we have shareholders who hold shares in qualified accounts where this is really not an issue for them and others that hold it in taxable accounts so I can't tell you where that decision is going to be, I only know that we're committed to shareholder value and we'll make the best decision with what we have in hand. So it is hard to say how we'll treat dividends in regards to taxation because we just don't know the taxation environment.
Now addressing the buyback authorization, we wanted to communicate to our shareholders that we wanted to use share buybacks as a way to reward them. The way we knew how to do that of course was to announce ahead of time, to be as transparent as possible, an authorization that allows us to buy back 200,000 shares. Now I can't comment on our activity on this authorization before any activity is completed, and we were very clear in the authorization that we were signaling an authorization only, not a commitment. Having said that, I think it's helpful to revisit a couple of things that were going on when we announced this, which was, I believe, back in September. Number one, we had just completed a stock split to increase the amount of shares outstanding which we thought would help our shareholders, especially some of the ones who have had shares for a long time, be more willing to trade the shares simply because they had more shares to trade with and could retain their original position (in number of shares). So to repurchase stock right after a stock split seemed to be two opposing initiatives Number two, if you remember right around that time looking at our business we were coming right off the acquisition, coming right off a time when there were particular factors affecting results, things like timing and seasonality. While wanting to communicate the fact that we wanted the flexibility to repurchase shares, we felt like we wanted to be as transparent as possible by letting some of those factors work their way out in the business, that way the shareholder has as much information as possible to make their decision about whether they buy or sell shares rather than us making the decision for them. So the confluence of all those things led us not to be active on that authorization to date yet still maintain the flexibility to do so in the future.
MM: It has been difficult in some instances for potential shareholders to acquire shares in the company due to the fact that the company is not DTCC eligible. Can you share any thoughts on how you might overcome this and your thoughts on improving the visibility of the company in the public markets? Do you hope to list on an exchange at some point in the future?
TK: The DTCC question never really raised itself to our awareness until we did the stock split. What happened was by distributing the shares that we split off some of our shareholders expressed the difficulty in getting some of their shares because we weren't DTCC eligible and so they raised the issue with us to make it easier to be a shareholder, and of course increase the visibility of our stock. And so we've been pursuing that and we hope to have a satisfactory resolution to that.
In terms of being listed on an exchange. We try to weigh the pros and cons of every decision through the eyes of the shareholder. Of course, the arguments against this are the costs of being listed on an exchange and whether it is an optimal return on shareholders' capital by paying those costs in exchange for greater visibility. And to date, we've decided that the costs, both in terms of financial costs and in terms of resources diverting management attention away from running the business, we've decided the trade off isn't favorable as it stands today. Some things that could happen in the future that could change our assessment of the situation could be things like wanting to go to the capital markets to raise equity, which we have no plans for right now. While listing on an exchange is still a possibility, when we look at the trade-offs we think we're in a better position to try and keep rewarding shareholders focusing our attention on running the business and delivering good returns and also doing things like talking with you and talking with others to make sure people know our story and it's being told the way that is most accurate.
MM: Thank you, Tim, very much for your time.
TK: You're welcome.
Forward Looking Statement
Investors are cautioned that forward-looking statements involve risks and uncertainties that may affect the business and prospects of The Marketing Alliance, Inc. Any forward-looking statements contained in this transcript represent the estimates or expectations of The Marketing Alliance, Inc. 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, general changes in economic conditions. While The Marketing Alliance, Inc. may elect to update forward-looking statements at some point in the future, it specifically disclaims any obligation to do so.
Disclaimer: Chanticleer Disclosure: Matthew Miller is a portfolio manager at Chanticleer Advisors, LLC and the fund Chanticleer manages owns shares in Marketing Alliance, Inc. It may in the future buy or sell shares and it is under no obligation to update its activities. This is not a recommendation to buy a security. Please do your own research before making an investment decision.
Disclosure: I am long MAAL.PK.