A-Mark Precious Metals Inc (AMRK) 2017 Q4 法說會逐字稿

Good afternoon, and welcome to A-Mark Precious Metals' conference call for the fiscal fourth quarter ended June 30, 2017.

My name is Matt, and I'll be your operator this afternoon.

Earlier today, A-Mark issued the result of its fiscal fourth quarter and full year 2017 in a press release, which is available in the Investor Relations section of the company's website at www.amark.com.

You could find a link to the Investor Relations section at the bottom of the homepage.

Joining us on today's call are A-Mark's CEO, Greg Roberts; President, Thor Gjerdrum; and CFO, Cary Dickson.

Following the remarks, we will open the call to your questions.

Then, before we conclude today's call, I'll provide the necessary cautions regarding the forward-looking statements made during management -- during this call.

I'd like to remind everyone that this call will be recorded and will be available for replay via a link available in the Investor Relations section of the company's website.

Now I'd like the turn call over to A-Mark's CEO, Mr. Greg Roberts.

Sir, please proceed.

Thank you, Matt, and welcome, everyone.

Thank you for joining us this afternoon.

Our financial results for Q4 as well as for the full fiscal year were in line with our expectations, given the continued subdued market.

With historically low levels of precious metal sales by the U.S. Mint reinforced by the sustained strength of the U.S. equities market as a whole, we continued to face headwinds which impacted demand for precious metals.

Nevertheless, we were able to take advantage of attracting trade opportunities in the fourth quarter.

Additionally, we experienced continued growth in our finance product offerings, further establishing our finance book as a meaningful source of income and adding greater predictability to our business model.

In fact, our interest income in Q4 increased 42% from Q4 of last year and was up 43% for the full fiscal year compared to fiscal 2016.

These solid increases were driven by the growth in the number of secured loans in our CFC lending business, which was up 103% year-over-year to a record 2,375 loans.

Most notably, though, Q4 marked our 14th consecutive quarter of profitability since becoming public.

We believe this achievement is a testament to our continued execution of an ability to capitalize on our plan.

Our financial results for the fourth quarter were also reflective of fiscal 2017 as a whole, both showcasing the viability of our increasingly diversified business and its effectiveness in mitigating the effects of the current market conditions.

Before I continue, I would like our CFO, Cary Dickson, to walk us through the financial details for the fiscal fourth quarter and the full year ended June 30, 2017.

Then, our President, Thor Gjerdrum, will discuss our market position and key operational metrics.

Afterwards, I will return to talk more about our operational progress and initiatives as well as our outlook.

Cary?

Thank you, Greg, and good afternoon, everyone.

Now turning to our financial results.

Our revenues for fiscal Q4 decreased 24% to $1.33 billion from $1.74 billion in fiscal Q4 of last year.

The decrease in revenue was mainly due to a decrease in the total amount of gold and silver ounces sold, primarily related to slower market conditions in the current period compared to the prior year.

For the full year, our revenues increased 3% to $6.99 billion from $6.78 billion in fiscal '16.

The increase in revenues for the full year was primarily due to an increase in the precious metal prices and higher forward sales, partially offset by a decrease in the total amount of gold ounces and silver ounces sold.

Our gross profit for Q4 of '17 decreased 20% to $6.1 million or 0.46% of revenue from $7.6 million or 0.4% of revenue in the same year-ago quarter.

The decrease in gross profit was primarily related to a decrease in the total volume of gold and silver ounces sold, offset by increased trading profits.

The decrease in volume of gold and silver ounces sold is primarily related to slower market conditions in the current period compared to the prior year.

For fiscal '17, our gross profit decreased 9% to $31.3 million or 0.45% of revenue from $34.5 million or 0.51% of revenue in the same year-ago period.

The decrease in gross margin was primarily due to subdued market conditions during the second half of '17, which constrained both volume and premium spreads, partially offset by increased trading profits during 2017.

Furthermore, the decrease in gross profit was due to higher premium spreads on the company's primary products in the first fiscal quarter of '16, when the company experienced a typical volatility in supply constraints.

Now turning to our expenses.

Our selling, general and administrative expenses for fiscal Q4 of '17 decreased 6% to $5.6 million from $5.9 million in Q4 of the prior year.

The decrease is primarily due to lower overall compensation expense, offset by increased expenses related to the development of a new enterprise resource system; selling, general and administrative expenses related to our new SilverTowne Minting operation; and onetime -- and a onetime disposal of fixed assets related to the move of our corporate headquarters.

For fiscal '17, our SG&A expenses increased 5% to $23.3 million from $22.2 million in fiscal '16.

The increase was due to various acquisition-related costs; selling, general and administrative expenses related to the SilverTowne Minting operations; as well as the increased consulting cost related to the development of a new enterprise resource system; and onetime disposal of fixed assets related to the relocation of our headquarters.

The increase is offset by a decrease overall compensation cost primarily related to incentive compensation.

Our interest income for fiscal Q4 increased 42% to $3.5 million from $2.4 million in the same year-ago quarter.

The increase in interest income was primarily due to an increase in the size of our loan portfolio, which generated $2.2 million in interest income compared to $1.4 million in the same year-ago quarter, an increase of 55%.

Our interest income is also up due to increased use of our inventory finance products by customers.

For the full year, our interest income increased 43% to $12.6 million from $8.8 million in the same year-ago period.

The increase in interest income was primarily due to an increase in the size of our loan portfolio, which generated $7.7 million in interest income compared to $4.8 million in the same year-ago period, an increase of 62% as well as increased use of inventory finance products by our customers.

Our interest expense for Q4 of '17 increased 30% to $2.7 million from $2.1 million in Q4 of last year.

The increase was primarily due to a greater usage of our lines of credit and product financing arrangements.

The increase is also due in part to higher LIBOR interest rates, which went into effect after the Federal Reserve rate increases, as well as increased amortization of loan facility cost.

For the full year of 2017, interest expense increased 60% to $10.1 million from $6.3 million the same year-ago period.

The increase is primarily due to greater usage of the company's lines of credit and other product financing arrangements, which resulted in $8.0 million of interest compared to $5.7 million in the same year-ago quarter, an increase of 39%.

The increase is also due in part to higher LIBOR rates, as I mentioned previously.

Our net income for Q4 of '17 increased 14% to $1.2 million or $0.0017 (sic) [$0.17] per diluted share compared to $1.1 million or $0.15 per diluted share in Q4 of last year.

The increase is primarily due to higher interest income and a lower tax provision offset by lower gross profit and higher interest expense.

For the full year of '17, our net income increased (sic) [decreased] 24% to $7.1 million or $1 per diluted share from $9.3 million or $1.3 per diluted share in the same period last year.

The decrease is primarily due to lower gross profit and higher interest expense, offset by higher interest income and lower tax provision.

Now turning to the balance sheet.

At quarter end, we had $13.1 million of cash on our balance sheet.

As you evaluate our balance sheet, it's important to remember that we are a net borrower, and we typically pay down our balances daily to minimize interest expense.

Our tangible net worth totaled $60.1 million or $8.44 per diluted share, which compares to $59.1 million or $8.30 per diluted share at the end of the prior quarter.

And finally, on August 30, our Board of Directors declared a regular quarterly cash dividend of $0.08 per share, reflecting their continued confidence in our balance sheet and our commitment to maximizing shareholder value.

The cash dividend will be paid on or about September 27 to all stockholders of record as of September 18.

This completes my financial summary.

Now I will turn the call over to Thor, who will provide an update on market conditions and key performance metrics.

Thor?

Thanks, Cary.

Turning to our key operational metrics for the quarter and fiscal year.

Our first key metric, gold and silver ounces sold, represents the ounces of metal we sell and deliver to customers during the period excluding any ounces recorded on forward contracts.

This is an important metric because it reflects the volume of business we are doing without regard to changes in commodity pricing, which figure into revenue and can mask underlying business trends.

During the fourth quarter, we sold 290,000 ounces of gold, which was down 50% from the prior quarter and down 59% from fiscal Q4 of last year.

For the full year of 2017, we sold 2.2 million ounces of gold, which was down 27% from 3 million in the same period last year.

Turning to silver.

During Q4, we sold 14.1 million ounces of silver, which was down 32% from the prior quarter and down 45% from Q4 of last year.

For the full year of 2017, we sold 79.6 million ounces of silver, which is down 37% from 126.3 million ounces in fiscal 2016.

The second key metric we track, and equally significant measure of our business, is trading ticket volume.

This metric tracks the total number of orders processed by our trading desks in Europe and the U.S. For those newer to our company, in periods of high volatility, there is generally increased trading in the commodity markets and increased demand for our products, which translates into higher business volumes.

During Q4, our trading ticket volume increased 2% to 28,098 tickets from the prior quarter and 34% from Q4 of last year.

For the full year 2017, our trading ticket volume increased 28% to 112,907 tickets from 88,486 tickets for the same period last year.

The year-over-year increase was primarily due to use -- higher use of our online trading portal by its customers -- by our customers.

It's important to point out, however, that a portion of the increase in ticket volume is because our online trading portal allows smaller minimum order sizes.

The third key metric we evaluate is inventory turnover, defined as the cost of sales during the period divided by the average inventory during the period.

As many of you know, inventory turnover is a measure of how quickly inventory is moved.

Those that have followed our company know that we typically experience a higher inventory turnover ratio during periods of increased volatility, when trading is more robust, reflecting a more efficient use of our capital.

For the fourth quarter, our inventory turnover ratio was 4.2, which is down 22% from 5.4 in the prior quarter and down 37% from 6.7 in Q4 of last year.

For fiscal 2017, our inventory turnover ratio was 26.3, which is down 15% from 30.9 in the same period last year.

The quarterly and full year declines in our inventory turnover ratio was primarily due to a higher volume of activity in our product financing and repurchase agreements with our customers; foreign-sourced metals, which typically have longer transit times; longer carry periods associated with our high-margin custom products; and custom lead time of products produced at SilverTowne.

Finally, the fourth key metric is the size of our lending business, which is determined using the number of secured loans we have at the end of the quarter.

The number of loans we secured at the end of the quarter was up 11% to a record 2,375 from the end of the prior quarter and up 103% from the end of Q4 last year.

This significant year-over-year improvement in the number of secured loans was primarily due to the acquisition of bullion-based loan portfolios.

At June 30, 2017, the dollar value of our CFC loan portfolio totaled a record $91.2 million, down 2% from the prior quarter and up 30% year-over-year.

That concludes my prepared remarks.

I will now turn it back over to Greg to talk about the progress we have made making our key operational initiatives as well as our outlook.

Greg?

Thank you, Thor.

From an operational perspective, fiscal 2017 marked another fundamental year in A-Mark's development, laying the foundation for future growth and increased profitability when market conditions create increased volatility and demand.

In the meantime, we have been focused on expanding our trading capacity, implementing new value-added services and also making strategic acquisitions to more vertically align our operations.

One of these strategic acquisitions was our purchase of a majority stake in SilverTowne Mint last August.

This joint venture has now been operational for 12 months and in that time has significantly expanded our capacity to meet unforeseen surges in demand during volatile market environments.

Over the course of this year, we were able to drive growth at SilverTowne through new marketing initiatives as well as through the development of a variety of unique product offerings, including customer-branded silver products and legal tender coins.

On top of this, we also continued to benefit from the operational and cost efficiencies provided by our logistics facility in Las Vegas and its wholesale operations consolidation.

One of our key initiatives in fiscal 2017 was to further expand our suite of ancillary services at that facility.

Therefore, in addition to securing new logistics customers, our marketing and sales efforts also remain focused on attracting additional customers for our precious metal storage programs, including precious metal custody options for self-directed IRA accounts.

Recently, we completed another strategic transaction by acquiring substantially all of the operating assets of Goldline, LLC, a leading direct retailer of precious metals to the investor community, for net consideration of approximately $10 million.

For nearly 6 decades, Goldline has delivered gold, silver and platinum coins and bars to collectors and investors all over the world.

And since 2000, Goldline has distributed more than $4 billion of precious metals through its various channels, which include TV, radio and their online platform.

We have known Goldline for years and have been impressed by its recent progress to grow its marketing presence and establish itself as a leader in the direct-to-client precious metals space.

The combination of Goldline sales and marketing expertise, coupled with A-Mark's products, logistics and storage expertise creates an unparalleled partnership for global precious metals distributions.

Today, Goldline's client base is comprised of more than 150,000 individuals, many of whom have substantial disposable income and alternative investment portfolios.

These clients have proven to be exceptionally loyal and recurring buyers, making them ideal consumers to benefit from our unique range of products, services and minting capabilities.

A significant number of these individuals make multiple purchases and are ideal candidates for our suite of value-added services.

As an example of the cross-selling possibilities now available, Goldline has sold more than $600 million worth of precious metals for inclusion in self-directed IRAs, which gives us significant optimism that many of these buyers will take advantage of our secured storage facilities in Las Vegas.

In addition, the Goldline acquisition includes a list of 1.2 million potential clients who have requested information but have not yet purchased products.

I'm happy to report that the Goldline integration process has gone very smoothly so far, and we are very impressed with the -- with our interactions with Goldline management.

In fact, in only 3 days after the close of the acquisition, Goldline had already begun shipping all of its packages through our Las Vegas logistics facility.

Moving forward, Goldline will function as a fully reporting subsidiary of A-Mark, led by Goldline's CEO, Brian Crumbaker.

And while we will realize some benefits in Q2, we do not expect to recognize full revenue contribution until Q3.

In all, Goldline marks the culmination of our 3-pronged vertical integration strategy, first was our Las Vegas logistics facility, followed by the SilverTowne Mint and now with Goldline, to build a world-class, vertically integrated precious metals company.

One of our key objectives in fiscal year 2018 will be to grow and create additional synergies through our Goldline subsidiary as well as our other channels to further enhance our business and to create even more predictable revenue streams.

As we look ahead to our present quarter, we continue to experience the slower market activity that characterized the second half of fiscal '17.

In the last 30 days, we've seen some positive indicators from various current geopolitical issues, and while these events have allowed gold prices to remain up as a result, they have not yet been effective in triggering sustained market demand.

Despite the fact that these tepid market trends are expected to persist in the near term, we remain increasingly watchful of the geopolitical climate and are aware of its significant ability to effect immediate change on the precious metals environment.

Over the course of fiscal 2017, we made significant progress along our strategic road map, positioning us effectively for the future.

Moving forward, we plan to leverage that project as well as our diversified business model to further expand our margins and capitalize on a more favorable market environment when presented to us.

We continue to believe A-Mark is in a strong position to grow regardless of market conditions, and we are focused on delivering this growth through the competitive advantage we've established over the last several years.

Collectively, our achievements have allowed us to deepen our customer relationships, which we believe will drive more predictable growth and profitability in the quarters and years ahead as well as attract new customers for many of our products and services.

Now with that, we're ready to open the call for your questions.

Matt, please provide the appropriate instructions.

(Operator Instructions) Our first question is from Sarkis Sherbetchyan from B. Riley & Co.

Can you hear me?

Yes, Sarkis.

Yes.

So first, with regards to the Goldline acquisition, can you maybe talk a little bit about the financial model and the implications to your business going forward, either on a sales, EBITDA or EPS perspective?

Sure.

Well, there are a number of synergies which we've talked about.

Those will be beneficial to A-Mark.

That will include a greater percentage of Goldline's products they sell will be sourced through A-Mark.

That will include specialty products that we are currently selling them as well as other mint products as well as we will be looking to introduce some custom products that are manufactured at SilverTowne for Goldline.

We believe that, in addition, we have logistics, storage, finance and almost all of our suite of services, we believe Goldline customers will be able to take advantage of.

We're currently looking at how to integrate CFC and the purchase financing at the Goldline level, and that's something that we had factored in to the model prior to the purchase and had talked to Goldline on a number of occasions about doing that.

So we believe that Goldline is well positioned to become a service loan originator for CFC.

Looking at the current environment, when we talk about what we expect from Goldline and what contributions we look at from them, it depends a lot on the market environment.

We felt like the last 3 to 4 months have been very slow and a slow summer across all of our customers, and that's reflected in the discussion we've had just prior to you asking the question.

But I believe that, with slightly improved market conditions, we're targeting Goldline to shoot for between $75 million and $85 million annually in retail sales.

We think that can increase.

We think we have products and services that can increase that.

We would hope by -- even if the market condition stayed the same, we would hope to see numbers in the $100 million to $110 million range by year 3. I think it's reasonable on an EBITDA basis that -- in the first 2 years of ownership that we could see $0.50 to $0.60 added and hope to increase that by year 3 to $0.70 to $0.80.

Most of the first 2 years, we expect to see starting in our Q3, possibly our Q4.

So you would -- we believe there's going to be a period of integration and a period of just getting Goldline going with some of these new ideas that will drive those numbers.

But they are a direct retailer.

They are a premier service provider as it relates to the level and quality of service they provide to their customers.

We believe their demographic of their customers is very favorable, and we -- as we've talked about before, there's -- in the last 17 years, they've sold about $4 billion worth of metal, and we plan on exposing those customers to our other services, which will benefit both Goldline and A-Mark.

Great.

That's very helpful.

And one more for me, if I may.

With respect to the number of synergies you just kind of outlined for us, does that mean that the Goldline business model is margin-accretive relative to the business model we've historically seen for the A-Mark business?

Yes.

I -- definitely.

Every service that Goldline provides that we will benefit from in a consolidated basis is at a higher margin than what A-Mark is used to doing.

So we will -- we believe that we can provide products, in particular bullion products, to Goldline at favorable terms, which will allow them to be competitive in their space against their competitors, which there's 3 or 4 of them.

And we believe that their margins will be accretive to our historical margins.

This will be one of the first times that it -- we'll be capturing some of those higher margins.

Good.

And then with regards to silver ounce volume trends here in the current quarter, I mean, just kind of taking into account all the things that are going on geopolitically, have you noticed any particular widening of spreads or volatility?

And how you've kind of reacted or are taken advantage of those particular events or days just from an operational perspective, any color around that?

I mean, our specialty products continue to perform well, albeit at slightly lower volumes.

I think the sovereign Mint products in particular, be it the U.S. Silver Eagle or the Maple Leaf, which you can just see from our ounce counts, most of the drop has been related to those sovereign mint products.

The U.S. Mint, I think, has -- over the last 4 months, has averaged less than 1.5 million ounces a month, and that's down from 4 million, 5 million ounces a month prior to the election.

And I think that we generally capture about the same amount of ounces that we purchase from the mints, whether they're selling 1 million ounces or 4 million ounces.

So a good portion of our Q4 drop in silver ounces was attributed to the -- specifically the U.S. Mint and the Canadian Mint.

And then as their demand goes, so does our ounce sales.

Our -- I think our SilverTowne silver products as well as some of the private mint products that we sell and some -- and our -- specifically our specialty products have been a little bit more resilient to the market and haven't had nearly the drop that the sovereign products have had.

So it's pretty much since the election, we've seen these headwinds and we're looking for ways to just take market share and do more business in the current environment, but also looking ahead in believing that this isn't going to last forever and that we want to be prepared to take advantage of market opportunities, particularly if we can provide services and products to new customers that can't get them other places in the market.

So I think we're working very hard to try to drive new business and new customers that just can't get everything we offer in other places.

So that answer your question?

Yes, very good.

Thank you.

I'll hop back in.

(Operator Instructions) And our next question comes from Greg Eisen from Singular Research.

Greg, Cary and Thor, I'd like to ask about the volume question a different way, since you already discussed the sovereign products being the single largest source of negative volume number this quarter.

Were there any end markets that were actually up this quarter?

And if so, would you be able to describe why?

Not in our segment.

Yes, I would say not in our segment.

I don't believe that any of our customers are seeing increased business in our Q4 ending June 30.

I will say that our partner, JM Bullion, I believe that they have had a fairly good improvement since the April or May period.

I think they're seeing a little more activity in the online space.

But compared to historical numbers, we're not seeing the same ounce numbers.

I think that, in the last 4 to 6 weeks, we have seen an increase across many of our customers just as gold has made its way through $1,300.

As we said earlier in the script, we've seen gold demand increase a little bit, and we've seen the price is up.

It has not yet really translated into silver ounces, but I think that we have seen some geopolitical and macro events that are -- in the last few weeks that seem to indicate that there -- that the demand is shifting a little bit.

Okay.

And you mentioned the U.S. Mint was down significantly, and you threw out -- you gave out the numbers there.

And you mentioned Canada was also a negative number.

Could you talk about other sovereign Mints around the world?

Are they -- is it a global phenomenon we're seeing?

Is there like a global mindset to buying -- trading these products from time to time?

I think, yes.

I do believe that.

I believe that publicity and action and fear definitely drive global demand.

I don't -- we don't see any part of the world right now that is on fire or is -- where demand is increasing significantly.

So I don't -- it's not like our European business is very hot right now and our U.S. business is slower, and the U.S. Mint is slow and the British Royal Mint is busy.

I think the barometer that we really used that seems to measure global demand is really what the U.S. Mint is selling in gold and silver.

They publish the numbers every month, so they're out there.

You can see them.

Our percentage of participation in what they make has -- is very consistent over the last 10 years.

We get about the same amount of their product that we are allocated that we buy.

And -- but I don't believe that there's an area of the market right now in physical delivery that is outperforming another.

I think, Canada in particular right now, they're a little bit more natural resource- and commodity-dominated, their economy.

So I would say that business in Canada is probably one of the slower places right now, where -- as opposed to other areas around the world.

Okay.

And then turning back to Goldline, if I may.

You mentioned you won't see full revenue contribution until Q3.

But we're still in Q1, aren't we?

So could you describe why Q2 won't?

There's just -- I think we would -- we will see some benefit in Q2.

I think we need to get some programs in place with them that we have been working on internally at A-Mark, but until we closed the deal, we weren't able to implement them.

And some of those programs take time.

There's some products that we're looking at that we think will be very appealing to Goldline's customers.

We believe that there are some things we can work on, on the expense side where we think we can benefit Goldline a little bit on the expense side and they can benefit us.

So I just -- we just are being very cautious.

And our model that we're looking at looks to start these products and services coming on board more in January of calendar year '18 as opposed to November of '17.

We're not talking about a great deal of time difference.

We're just giving ourselves a little bit of time to integrate our plan and the thoughts we've had that will make Goldline more successful.

Okay.

Understood.

I understand what you're saying there.

You...

I will tell you that we closed on August 28, and that after 4 tries, that was the day that gold got through $1,300, and there was 3 stories in the Wall Street Journal on gold.

So that was particularly good timing, and I think Goldline's -- Goldline outperformed our expectations in the first 3 weeks.

But it's a very small sample size, and I'd hate to leave anybody with the feeling that we magically flipped a switch the day we owned it and everything's great.

But like I said in the beginning, we have been pleasantly, pleasantly surprised in the first 15 days of ownership that things are a little bit ahead of what we would've expected.

Understood, understood.

If I could just ask a few cost questions, which, I guess, are pretty obvious ones.

You mentioned there was a onetime item for the headquarters move.

Could you say when the headquarters move was completed?

What day?

We actually -- we moved from Santa Monica to El Segundo in February, and I believe we wrapped it all up by the end of April.

We are early -- we were completely out of the space by the end of April.

So we're now entirely up in El Segundo, and we no longer have a presence in the city of Santa Monica.

Oh, in -- you're in El Segundo.

Got it.

Okay, understood.

And the ERP system, you had some onetime cost involved there.

When do you expect that to be completed and fully implemented?

It's in user-acceptance training now, and we are docking, completing our testing, and we expect it to be up here fairly shortly.

We have a -- we do have a rollout date, but that will be subject to internal control and to a lot of sign-off, but it will certainly be in the next few months.

Got it.

And by my quick calculation, it looked like you had an implicit 18% tax rate against pretax income this quarter.

Could you talk about the factors that drove that?

Yes, I can speak to that.

We had some benefits that we had an appeals audit going on with our prior parent company that we are a part of a former tax sharing agreement with, and we settled some of the years on that appeals audit in the fourth quarter, and that yielded us some benefits, some tax attribute benefits, including some increased California NOL on some NOLs that we're carrying forward.

And we also had some tax, what we call exposures on the books that were being accrued that we -- when we closed out the audits, we could release some of those.

We got some benefits for that.

I think we also had a situation where we -- last year, we had -- our rate was in the comparative rate analysis.

We had some acquisition -- M&A-type cost related to an acquisition that didn't go through, and that caused a permanent benefit that made our tax rate go up, and then when we abandoned those costs in this year, it went the opposite direction.

We got a benefit for it.

So we -- the bottom line is we enjoyed a couple multiple benefits in the fourth quarter that drove the quarterly rate down quite a bit, only drove the annual rate down a little bit.

So that's why you're seeing that.

It looks more exaggerated in the quarter.

Got it.

So these clearly are onetime items.

So looking at next year and the year after, what would you say is a reasonable estimated tax rate on a combined basis?

I would -- I think we feel pretty comfortable with 37.5%.

37%, 37.5% is the right kind of rate.

That's really only A-Mark only.

We -- the one thing we have to still do now is sort of roll that into Goldline going forward.

I don't expect that Goldline's going to distort that, that much, but they will have an impact to the rate, particularly on the state side because they have a different state tax posture than we do.

So we're going to -- we're just -- we're working through that now, and I think, by the first quarter this year, we'll have -- we'll be able to roll up and say what our rate's going to look like on an overall basis.

The next question is from Rick Fearon from Accretive Capital Partners.

Greg, just a couple of quick questions to continue on the discussion of the Goldline acquisition.

It sounds like, with $75 million to $85 million in sales with a potential to grow to $100 million, $110 million when you kind of get things up and running and this contribution of $0.50 to $0.60 of earnings per share in years 1 and 2 and that growing to potentially a good 30-plus percent, it does sound like it's a very high-margin business.

And I know there were some questions about that.

Are we looking at sort of a 10% to 15% EBITDA margin type business there?

Yes, I think that's reasonable, maybe even a little bit higher.

I -- we equate Goldline a little bit like a full-service brokerage company, a higher-end full-service company.

Goldline charges a little -- they charge a fairly strong retail margin, although they're not as expensive as some of the peers in their space.

They're -- but they're definitely -- they don't charge for credit cards, they don't charge for shipping.

They have some other services they provide as it relates to price protection on -- for a short period of time after you purchase from them.

So they -- and then they're much more hands-on, they're much more customer service-friendly, I would say and -- than their competitors in their space.

So they are a little higher margin, but I would say, yes, their business is generating -- should generate in the 10% EBITDA range after everything.

That's some strong incentive to grow that business as rapidly as you can.

And so can you just maybe elaborate a little bit on some of the cross-selling opportunities?

And then, secondly, on the ability to mine some of those contacts, the 1.2 million contacts that they have, some dormant clearly, and then the existing customer base?

Yes, sure.

I think that -- specifically to the $1.2 million -- 1.2 million customers, or leads that they call them, that haven't purchased, some portion of those leads are not probably looking for full service or looking for the margins that they're charging.

They may be looking for a more discounted way to purchase precious metals.

We put a value on those leads.

We plan on trying to help Goldline monetize those leads in some way and figure -- and part of our plan is to not just -- historically, Goldline has just let those go.

I mean, they pay a lot of money for those leads.

They have -- whether it be radio or TV, they pay a high dollar amount for the actual customers, but they also pay for the leads and, historically, they had been unable to monetize those.

So we think that with our relationships in the marketplace and our -- some of our ideas on how to attack that, we think there's value there, and we believe it can be monetized.

As far as existing clients, the 150,000 clients, they are still purchasing precious metals today.

In fact, last week, a customer who had not purchased from them since 1999, which is actually outside of the customer base we looked at, had not spoken to them or made a purchase in 18 years, called back up and made a fairly large purchase last week and was able to talk to the same broker that he had 18 years ago, which says a lot for their continuity and a lot for the customer loyalty as well as the employee loyalty.

So we think doing -- working on older clients as it relates to trying to give them products and services they can buy if they haven't done anything for a year or 2, I think we can do a better job.

I think analyzing the data of their customers and when their customers purchased -- just as a very quick analysis, a company that's been around as long as Goldline has, they have customers who bought gold at $300 an ounce, so -- and they bought silver at $6 an ounce.

So Goldline has not really spent much time looking at that specific information in their old client base, but clearly, you want to make sure that a person who bought gold at $300, when now it's at $1,300, is aware of their opportunity to monetize a profit or to use that equity to purchase more.

And so we want to make sure we focus on we're getting everything we can out of Goldline buying back from their customers, which now, with A-Mark's trading desk and A-Mark's vast customer base, is just easier for Goldline to solicit buybacks.

So that's a new area that we've kind of factored in down the road that we think we can get to.

I think as we talked -- touched on briefly, IRA storage is a big revenue stream, and it's a way for us to fill up our Vegas facility going forward as well as we've -- just in the last few weeks, we've finalized all the agreements with the IRA trustees who are now -- have now on-boarded Vegas -- A-Mark's Vegas facility as an approved depository for IRAs.

So it will -- going forward it will be much easier for Goldline to direct their clients to store in Vegas.

As well as we think we can work to move a good deal of the metal from other depositories that Goldline has sold into the Vegas facility.

So we see that a real big part of that.

In addition, if you've got $1 billion worth of metals stored at your facility in IRAs, some portion of that gets liquidated every year.

And the fact that there's no shipping charges and that the metal can be monetized right there at the facility through the A-Mark trading desk is just kind of an added benefit that we think we'll start to see next year.

And then as we said, Goldline, right after the close, moved all of their inventory to Vegas.

They moved all of their logistics and have turned that over to our global logistics business, and we've -- now have the benefit of one of their traders who had been trading for Goldline has now come over to the A-Mark desk.

So we bring that institutional knowledge of Goldline to our desk, and we think that could open up some wholesale customers we're not dealing with as well as just helping us to make better trades and do a better job for Goldline.

So I mean, these are a bunch of some of the things that we're working on.

Right.

And it sounded like, in addition to some good trading talent that you've inherited, you've also brought on a really strong executive team and -- that is helping with the integration rationalization, and it would seem that there could be an interesting opportunity to grow this business through additional acquisitions.

Is that -- and I know you've got your plate full right now with this -- the rationalization of this business, but do you foresee those opportunities out there?

I certainly think they're out there, but I would guess that you probably don't want me to run off and do that as a shareholder until we start to get to that contribution phase.

Yes.

And do you expect -- I know that by the third quarter into fiscal 2018, you think it'll be up and fully on its way to fully contributing.

Is it accretive in this coming quarter, in the second quarter of fiscal '18?

I don't think it will be, but I'm being very, very cautious on that.

I think that we believe a good target is that it will start to be accretive in January.

I think that -- but it's just very difficult, like I said, for me to predict.

I mean, we projected a loss in the first 3 months, and we've already seen what looks like a potential profit in September.

So I think it's really not -- it's not good for me to try to predict what market conditions are going to be.

I think the important thing to note, this company is up and running fully independent and can -- has a model that makes money if the volumes are there.

And we think that they're well positioned without any real additional capital investment from us.

There's really no capital or money we need to put in, other than the fact that there -- they need some market conditions.

The other thing that they spend a lot of money on is radio advertising and some higher-expense advertising and more mainstream advertising to attract retail investors.

It's important to note that, generally, the contracts they have on some very expensive media is usually 12-month contracts.

Those contracts generally get renewed, like a lot of advertising in the October time period, October, November time period.

So I think that one of the things we've inherited is some contracts that were negotiated before the election last year.

And things looked differently right before the election last year, particularly in the precious metal space, as well as in a lot of conservative advertising locations, which is where Goldline advertises.

So I think we're very aware of those contracts.

We're very comfortable with the contracts, but the contracts will probably cost less 6 months from now than they're costing now.

This concludes today's question-and-answer session.

I'd like to turn the floor back over to Mr. Roberts for any closing comments.

Thank you for joining us today.

I especially want to thank our investors for your continued support, and our dedicated employees for their ongoing contributions to build A-Mark into a global leader in precious metals trading.

We look forward to updating you on our next call.

Thank you.

Matt?

Before we conclude today's call, I'd like to provide A-Mark's safe harbor statement that includes important cautions regarding forward-looking statements made during this call.

During today's call, there were forward-looking statements made regarding future events.

Statements that relate to A-Mark's future plans, objectives, expectations, performance, events and the like are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the Securities Exchange Act of 1934.

Future events, risks and uncertainties, individually or in the aggregate, could cause actual results to differ materially from those expressed or implied in these statements.

Factors that could cause actual results to differ include the following: the failure to execute the company's growth strategy as planned; greater-than-anticipated costs incurred to execute the strategy; changes in the current domestic and international political climate, which has favorably continued to demand and the volatility in the precious metals markets; increased competition for A-Marks higher-margin services, which could depress pricing; the failure of the company's business model to respond to changes in the market environment as anticipated; general risk of doing business in the commodity markets; and other business, economic, financial and governmental risks as described in the company's public filings with the Securities and Exchange Commission.

The words should, believe, estimate, expect, intend, anticipate, foresee, plan and similar expressions and variations thereof identify certain of such forward-looking statements, which speak only as of the date on which they were made.

Additionally, any statements related to the future improved performance and estimates of revenues and earnings per share are forward-looking statements.

The company undertakes no obligation to publicly update or revise any forward-looking statements.

Readers are cautioned to not place undue reliance on these forward-looking statements.

Finally, I'd like to remind everyone that a recording of today's call will be available for replay via a link in the Investor Relations section of the company's website.

Thank you for joining us today for A-Mark's fiscal Q4 earnings call.

You may now disconnect.