A-Mark Precious Metals Inc (AMRK) 2018 Q1 法說會逐字稿

Greetings, and welcome to the A-Mark Precious Metals' Conference Call for the Fiscal First Quarter Ended September 30, 2017.

My name is Kevin, and I'll be your operator today.

Last night, A-Mark issued the results of its fiscal first quarter 2018 in the press release, which is available on 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'll open the call for your questions.

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

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

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

Please go ahead, sir.

Thank you, Kevin, and welcome, everyone.

Thank you for joining us this afternoon.

As you can see from our earnings release, our financial results for the first quarter were impacted by the continuing subdued conditions in the precious metals market.

We believe we are gaining market share and continue to look for ways to do more business in the current environment.

To that end, we are judiciously investing in growth areas to further diversify our business and offerings, with the objective of being in a stronger position to capitalize on profitable opportunities when market conditions improve.

One area of focus is our development of automation tools to meet the expanding requirements of our existing customers as well as new customers.

Including customer facing account management tools, enhancements to our online portal and tools which will enhance our expanded trading hours.

Another area of focus is distribution through our acquisition of Goldline, a leading direct retailer of precious metals to the investor community, which we completed at the end of August.

As I talked about on our last call, this acquisition presents a substantial opportunity for us to leverage Goldline's marketing platform to upsell and cross-sell our suite of services to Goldline's 150,000 clients as well as their prospective client leads.

It's been a very busy first 3 months since the acquisition, but I am pleased to report that the integration is moving forward as planned and we are already realizing sales and logistics synergies across both organizations.

I plan to talk more about Goldline as well as some other operational highlight shortly.

But first, I would like our CFO, Cary Dickson, to walk us through the financial details for the fiscal first quarter of 2018.

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

Afterwards, I will return to talk more about operational progress and initiatives as well as our outlook for the next few quarters.

Cary?

Thank you, Greg, and good afternoon to everybody.

Turning to of our financial results for the fiscal first quarter ended September 30, 2007 (sic) [2017], which included approximately 1 month of the results from Goldline.

Our revenues increased 20% to $2.16 billion from $1.81 billion in the same year ago quarter.

The increases in revenues were mainly due to higher forward sales, partially offset by a decrease in the total amount of gold and silver prices and ounces sold.

Our gross profit decreased 9% to $7.3 million or 0.3% of revenue from $8.1 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 and trading profits, partially offset by increased gross profits from our new Goldline subsidiary.

The decrease in volume of gold and silver ounces was primarily related to slower market conditions in the current period compared to the same year ago quarter.

Now turning to our expenses.

Our SG&A expenses increased 23% to $7.0 million from $5.7 million in the same year ago quarter.

The increase is primarily due to the acquisition of Goldline on August 28, 2007 (sic) 2017 , whose September results are including in our consolidated earnings for Q1 fiscal 2018, partially offset by a decrease in performance-based compensation expense.

Our interest income increased 10% to $3.2 million from $2.9 million in the same year ago quarter.

The increase in interest income was partially due to an increase in the size of our loan portfolio, which generated an increase in interest income of $0.4 million as compared to the same year ago quarter, an increase of 21%.

Interest expense in the first quarter increased 22% to $2.7 million from $2.2 million in the same year ago quarter.

The increase was primarily due to greater usage of our line of credit, our new Goldline Credit Facility and other product financing arrangements.

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

Turning to our profitability metrics, our net income increased 75% -- or decreased, I should say, 75% to $478,000 or $0.07 per diluted share from $2.0 million or $0.27 per diluted share in the same year ago quarter.

This decrease in net income was primarily due to lower physical sales volumes.

Now turning to balance sheet.

At quarter end, we had $8.5 million available cash on our balance sheet.

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

It's also worth note -- mentioning, that at the end of the quarter, we had $7.5 million of long-term debt related to our acquisition of Goldline.

The debt was used in its entirety to finance the predominant portion of the purchase price.

Our tangible net worth totaled $54.1 million or $0.076 (sic) [$7.6] per diluted share, which compares to $60.1 million or $8.44 per diluted share at the end of the prior quarter.

The decrease relates primarily to the acquisition of Goldline's nontangible assets during the quarter.

And finally, on November 13, 2007 -- 2017, 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 December 13, 2007 -- 2017 to all stockholders of record as of November 24, 2017.

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.

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.

As I've talked about in prior calls, this 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.

As Greg alluded to you in his opening remarks, with historically low sales levels at the U.S. Mint, reinforced by the strength of U.S. equity markets as a whole, we continue to face headwinds, which impacted demand for precious metals.

In fact, sale of this year of American Eagles, a popular gold coin and a proxy for retail sales of physical gold, has fallen to their lowest levels since 2007 according to United States Mint.

So with that in mind, during the first quarter, we sold 332,000 ounces of gold, which was up 14% from the prior quarter but down 37% from fiscal Q1 of last year.

Turning to silver, during Q1 we sold 14.5 million ounces of silver, which was up 3% from the prior quarter, but down 33% from Q1 of last year.

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

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

During Q1, our trading ticket volume increased 6% to 29,833 tickets from the prior quarter and increased 35% from Q1 of last year.

Both the sequential and year-over-year increase was primarily due to higher use of our online trading portal 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 turn is a measure of how quickly inventory is moved.

Those who 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 first quarter, our inventory turnover ratio was 7.2, which was up 71% from 4.2 in the prior quarter and up 9% from 6.6 in the Q1 of last year.

And finally, the fourth key metric is the size of our lending business, which is determined by using a 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 3% to a record 2,454 from the end of the prior quarter, which was up 47% from the end of Q1 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 September 30, 2017, the dollar value of our CFC loan portfolio totaled $88.9 million, down 3% from the prior quarter but up 7% year-over-year.

That concludes my prepared remarks.

I'll now turn it back over to Greg to talk about the progress we've been making on our key operational initiatives as well as our outlook.

Greg?

Thanks, Thor.

From an operational standpoint in the third quarter, we continued to focus on activities and efforts related to expanding our trading capacity, adding new value-added services and also making strategic acquisitions to more vertically align our operations.

Along that line, our acquisition of Goldline marked a culmination of a 3-pronged vertical integration strategy, first, with our Las Vegas logistics facility, followed by SilverTowne Mint in 2016 and now Goldline in 2017, to build a world-class vertically integrated precious metals company.

For those of you that didn't have the benefit of listening to our last call, Goldline has delivered gold, silver and platinum coins and bars to collectors and investors globally.

To put some numbers around that, since 2000, Goldline has distributed more than $4 billion of precious metals.

The unique combination of Goldline sales and marketing expertise, coupled with our platform of products, logistics and storage expertise creates an unparalleled partnership for global precious metals distribution.

I am pleased to report, we have fully integrated Goldline's inventory management to our Las Vegas logistics facility.

We've written the first CFC loan to a Goldline customer and we have begun Goldline IRA storage in our Las Vegas facility.

With the acquisition of Goldline, we inherited a client base of more than 150,000 individual investors, many of whom have been proven to be exceptionally loyal and recurring buyers, making them ideal consumers to benefit from our product services and minting capabilities.

As I mentioned at the outset, the integration and consolidation of Goldline into our operations is moving forward as planned.

In fact, Goldline is now shipping all of its packages through our Las Vegas logistics facility.

We expect to complete the full integration within the next 6 months.

The results in Q1 of fiscal 2018 for Goldline, represent activity from August 28, 2017, when we closed the transaction or 32 of 90 calendar days.

During that period, Goldline revenues were approximately $3.5 million, selling approximately 2,000 ounces of gold and 20,000 ounces of silver, with a gross margin percentage of approximately 16%.

Based on performance and our integration initiatives, we are seeing thus far in Q2 of fiscal 2018 and based on our ongoing integration efforts, as expected, we expect to see Goldline as a drag on our full second-year quarter results.

From a financial standpoint, we are taking the appropriate measures to realize financial synergies between A-Mark and Goldline, including reducing costs wherever possible.

This included consolidating Goldline's vault and logistics activities as I mentioned, as well as tightly managing advertising spend to better align it with Goldline's revenue level.

As I mentioned on our last call, we believe the Goldline business could surpass $10 million per month in gross sales within the next 12 to 18 months.

But in the near term, we are focusing on optimizing its cost structures and efficiencies as well as driving growth through attractive cross and upsell opportunities with the Goldline customer base.

In turn, this will further enhance our business with the goal of creating even more predictable revenue streams.

As we look forward to our present quarter, I'm encouraged to report that demand for precious metals picked up slightly in October.

Although, was still down from the levels we experienced in prior years.

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

I am pleased to report our Las Vegas logistics facility is in the final stages of working towards approval from GoldStar Trust Company, for on-site IRA storage.

GoldStar Trust Company is a division of Happy State Bank with over 25 years of experience as a self-directed IRA custodian, trustee and Escrow/Paying agent.

Goldstar was established in 1989 and currently has approximately $2 billion in assets and more than 37,500 self-directed IRA accounts under its custodian program.

The addition of Goldstar would represent a key opportunity to grow our Las Vegas storage revenues.

So in summary, we've made significant progress along our strategic roadmap, positioning us effectively for the future.

Moving forward, we aim to leverage that progress as well as our diversified business model to further expand our margins and capitalize on a more favorable market environment.

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

Operator, please provide the appropriate instructions.

(Operator Instructions) Our first question today is coming from Sarkis Sherbetchyan from B. Riley FBR.

Real quickly on the higher sales of forward contracts, can you maybe give us some color on maybe how that impacted gross margin?

And perhaps if you expect to engage in similar levels of forward contract sales in future quarters?

Sure.

So the company cost is constantly entering into forward contracts.

We use forward contracts and futures in combination to hedge our inventory.

Forward contracts are recognized as revenue.

In the prior -- in the quarter we just completed here then we had higher than usual hedges in forwards versus futures and typically the decision at our trading desk is a result of -- there are cost benefits to being more heavily into forwards or futures.

There were cost benefits to being into forwards this quarter.

As a result, we had a much higher volume of forwards than futures in this last quarter.

What happens to margins as a result is, those forwards are effectively done at close to no margin.

So you have higher revenues, which then results in showing a lower gross profit percentage, even though the gross profit percentage on the physical volumes didn't deteriorate incrementally quarter-over-quarter.

That percentage is impacted by those higher forward sales.

Understood.

So that forward sale is going to really, kind of, depend quarter-to-quarter, right?

I mean, that's not really a run rate going forward.

Is that the right way to think about it?

That's exactly why we provide the ounce volumes.

That's right.

So we really can't predict what level of hedging we're going to do with forward or futures.

It's just going to depend which method is more cost effective and that's a decision made at our trading desk.

So that the way that you can-- that's exactly why we provide the ounce volumes.

You want to look at the ounce volumes to see what the physical trends are, our revenues can be significantly impacted by higher or lower level of forward sales.

Understood.

And I think, you just mentioned that the gross margin on the physical volume didn't deteriorate from the other quarter.

Can you maybe give us some comments on what you saw, as it spread in the quarter as well as what you're seeing in the current quarter with regards to those trends?

Yes.

Yes, really the last -- going back to Q4 of fiscal '17 and Q1 of '18 and even in this current quarter, the margins in all of those periods have been lower, that the spreads have been pretty tight.

They have remained in that range, maybe even tightened slightly.

But I wouldn't say there has been a material continued deterioration of margins.

But I qualify that with, in general, 90 days back, the last 90 days, you have seen compressed margins and we're continuing to see those trends.

Got it.

And then just, kind of, moving on to Goldline.

I think you mentioned in the prepared remarks that revenues were $3.5 million, was that the right number?

For the period, since we took -- since we closed the deal, correct.

Okay.

And then on a 3-month basis, I mean, are the revenues fairly consistent?

Or is there a little bit of lumpiness inside a quarter?

So just, kind of, I'm thinking about revenue tier inside this quarter.

Like what would you think revenue is going to be for the business?

Like I said, in a subsequent remark, I think that we believe the right balance of sales is around -- what we could achieve is around $10 million per month.

They've been there before.

But I think what we're most focused on right now is finding the right level of sales that add to the P&L.

So there's a little bit of a balance right now.

What -- we're not so much worried short term in the next couple of quarters, about how much they sell per month.

What we're most concerned about is managing the expense side of the business.

Now one of the benefits to the purchase was, they were -- they have had declining revenues over the last 12 months.

And we felt that we were most focused on the actual asset purchase and what we were paying for the assets.

Our first goal is to size the model properly.

And we believe that their current run rate should be in the $3.5 million to $5.5 million per month range.

But we believe that there will be ways grow it.

And that has a lot to do with balancing the advertising and marketing expenses, along with the margin charged.

Goldline has been historically a higher-margin company.

And one of the things we're focusing on is what is the right balance of margin versus achieving the most sales in combination with marketing expenses.

So those are some of the things that we're working through this quarter.

But we feel, initially, that what we're seeing and how we're feeling about the assets we purchased is that, we're very excited about the potential.

We just believe that our knowledge of the market and our ability to help Goldline manage the mix between profit margin and sales is something that we're going to be able to help them with.

So we're working on that right now.

And then I see in the 10-Q that was filed at the pretax net income for this business was around breakeven, a little profitable.

Do you still expect the business to be at this level of profitability?

Or kind of, breakeven in the first half and then accelerating profitability in the back half?

I think that our Q2, the quarter we're in right now, as we are making some changes and as we are working through integration.

And like I said, finding the perfect mix of profit margin versus sales and advertising.

We are going to see a drag this quarter on the overall A-Mark performance from Goldline, as I said.

But we feel very comfortable that -- and this is something we anticipated when we modeled out the business, that the third quarter and the fourth quarter will contribute.

This quarter, as we went into this, we anticipated this quarter would be -- we would have some work to do on it.

Now that's anticipating the current market environment.

What we did see, in September, was with Goldline, there are significant upside to their model, with macro events and global political events, and Goldline reacts to those much more materially and quickly then maybe A-Mark's wholesale customers do.

So what we saw in September, when there were some outside influences, particularly threats from North Korea and some other issues, we see Goldline respond to that very quickly.

So that it's difficult for us at this moment to, kind of, predict exactly what will happen in the next 6 weeks in this quarter.

But we believe that what we're seeing is just a tremendous potential for A-Mark as a whole when this client base responds and when they purchase.

And that can be a little bit sporadic, and it can have a lot to do with price movement of gold and silver.

But as they are retailers, it's much more dependent upon what the retail mindset is.

Our next question today is coming from Mitch Almy from Wedbush Securities.

I was hoping, you could go to the interest expense line -- the difference between the interest income and interest expense because interest expense grew comfortably more.

And if you could break out maybe how much of the additional borrowing was separate from your loan book?

And how much that accounted for the, so I guess, the shrinkage in net interest income that's going to occur, if both those lines keep growing in a straight fashion?

Right.

So the interest income expense has -- is directly affected by what the loan book is doing and what we're getting from our CFC business in particular.

The other big component of interest income is -- I'm sorry, of interest expense has to do with our inventory financing and how we carry the inventory and how fast the inventory is turning.

Remember that we're fully hedged, but we do choose to carry certain inventories, which are either in our balance sheet as inventory or they might be purchase financing that we do off the balance sheet, which we describe in the Q. Those components of cost are reflected in the interest income -- I mean, the interest expense.

The interest income line is almost solely to the interest we collect from the CFC loan customers, which is why you can see an imbalance here and why it doesn't necessarily increase or decrease proportionately.

I believe that in the current quarter, we are seeing opportunities to buy inventory at discounts because of the slow demand.

We're buying a number of secondary market products that are coming onto the marketplace through liquidations, that we're able to buy what we think is a very favorable premium over the metal content.

So I think that one of our conscious decisions right now is that we believe that for a very short-term cost and for a low cost, we have consciously taken advantage of some buying opportunities to carry a bit more inventory in anticipation of selling that inventory and hopefully realizing a larger margin in the future.

So compared to past quarters, you are going to make up in gross margin what you're giving up in interest expense right now as opposed to just running a matchbook of both.

Correct.

I mean, it's obviously calculated risk versus reward.

We do have a -- we have finance products that we utilize right now that will finance inventory at what we think is a favorable rate in anticipation of increased premiums in the future.

That may or may not transpire.

But we believe that if people are willing to sell us product at below replacement cost right now, just due to the fact that the market is slow and people are more likely to just not hold inventory themselves but to off it on us, we're happy to take that.

Again, it's fully hedged.

So it's just really a premium opportunity that we believe we would rather hold certain inventory -- a little bit more inventory right now, than to sell it into the marketplace at the current premiums.

So we're not going away from our model as it relates to that we don't speculate on the price of metal and that we're fully hedged.

But we do and have historically, when we feel there is an opportunity, we will speculate on the premium and that's what's happening right now.

We're selling a -- one of the reasons the mint sales are down particularly on gold ounces is that their -- the market has transitioned into more secondary backdated gold coins, U.S. Eagles in particular and Maple Leafs being available on the marketplace that we are buying and that we're selling or holding.

And those -- that demand for those products are coming to us and we're still making the sales, but we're making it in products we're buying on the secondary market as opposed to us ordering from the Mint every time we get an order for Eagle.

So it's a little bit connected in that, yes, the demand is down.

And that, yes, the Mint is selling fewer ounces, which we've highlighted.

Part of that's attributed to investor sentiment and demand for the product.

But a lot of it is due to the slower market conditions and that you can buy backdated Gold Eagles cheaper than you can buy new Eagles from the Mint and that's taking a little bit of -- that's taking production away from the U.S. Mint on new coins.

So we are transitioning a little bit in a different environment that could switch.

And there aren't any secondary coins available and all the demand is going for new product.

But we feel very comfortable and we feel confident that we're doing a great job right now of navigating some of these changes and some of these anomalies in our market and we feel like we have a really good handle on what's going on in the marketplace.

And we see increased activity from customers who haven't ordinarily dealt with us over the last couple of years.

We're seeing a lot of new customers using our portal for online trades.

And so we really -- we feel like we're really grasping the market and we feel like we -- in spite of this, we had some onetime charges this quarter.

But we feel like we're running the business very efficiently and we feel like we're running the business smart.

Okay.

One last question and that's it.

You've alluded a couple of times to the kind of the slack demand.

And I am unaware of another company constructed like yourselves.

But if I were to look at the next best company or the next place I could look, there would be a proxy for industry conditions that you are experiencing, who would I look at?

Where would I look at outside of just the price of gold?

I mean, I think it comes down to, again, it's not directly correlated.

But I think it comes down to what is the demand in the marketplace for the new U.S. Mint products.

Keeping in mind, what I just explained about a abundance of secondary product available right now.

I will say that, although the Mint numbers are down, A-Mark's percentage of what the Mint is selling to us is up.

And how we reflect market share, is we know, if the Mint makes 10 million ounces of silver and we buy 35% of it, that's one thing.

If the Mint makes 1 million ounces and we buy 46% of it, we know that we are getting -- we're taking advantage of somebody else not buying that metal, customers are coming to us.

I don't have an exact proxy as it relates to a different company.

I mean, I -- my competitors unfortunately, don't tell me exactly what they are doing or how they are doing.

So I can't really see that.

Historically, others have used the comparison of INTL as a company that is public, that is somewhat similar to our model.

But to be quite honest, we are very familiar with INTL, and we might only have 2 to 3 products out of 20 that each of us have that are actually crossover.

So they do a different business then us and they don't do some of the same things we do.

So I don't have a good comparison.

I just -- we are finding that we just -- we seem to be the first call on customers who haven't called us for a while.

And once we get back to where customers that have maybe moved on to one of our competitors, gets back to making the first call to A-Mark, we rarely lose that customer, once we get them.

And I think there is a consciousness effort right now on the desk that if in this environment, if a client calls and wants to do business with us, we are going to get the sale no matter what.

We will -- if we sell them 5 different products on a ticket, we'll breakeven on 4 products to make money on 1 of the products.

And I think that's just a mindset that we believe there is opportunity right now to grow our market share and get market share.

And we just are of the position right now, we want the business, we don't want to turn customers away.

And that's our strategy right now, whether those customers -- it's our job then when the market picks up and when customers' orders are bigger, it's our job to keep them.

But we believe that right now is a good opportunity to make sure that if there's customers out there that have done business with our competitors in the last year or 2 and they are giving us an opportunity to do business with them, we will.

(Operator Instructions) Our next question is coming from Greg Eisen from Singular Research.

You said earlier that you saw an increase in trade ticket volume through your online portal.

But these tickets were at a lower unit price, dollars per trade.

Do you experience a better gross margin on the smaller trade tickets and is it material to your overall gross margin?

No, I think, that what the portal allows customers to do is to place smaller orders more frequently.

Historically, A-Mark would have order minimums for live orders on our trading desk.

And we realize we lost some customers to competitors who were willing to take smaller orders.

And let's just call it 500 ounces of silver or 100 ounces of gold, may have been a historical quantity point where A-Mark would take those orders on our live desk.

Today, we may have a customer buy 50 ounces on the portal.

And they'll buy 50 ounces every day for 10 days to get to the 500.

So what was historically 1 ticket for 500 ounces is now 10 tickets for 50 ounces.

We believe that, that's a service that our customers want and need.

And particularly in slower market conditions, they don't want or cannot afford to say, inventory 200 ounces of gold, they only want to buy when their customers have ordered from them.

So we are very optimistic and we have seen great progress just in the last 12 months for these types of orders.

And we anticipate that, when the market is more active, we will be able to handle much larger tickets and much larger orders and grow sales with the same amount of live traders, because they'll be working in conjunction with the portal.

So and that -- the live traders will be able to focus on the bigger orders and the portal will take care of the smaller orders.

So we believe we're really well positioned with the portal right now.

One of the things we're working on and we're very close to is 24/5 portal access for customers, which we believe we can launch in the next 45 to 60 days, where we will be able to offer portal ordering to clients, automated, 24 hours a day, 5 days a week.

So these are all things we're investing in right now, that we believe get them up and running when things are slow and the results will be exponentially better when the market picks up.

If you look back to the last time you had very high volatility and volume surge in the business, which is I guess, the first quarter of -- that the first quarter in September 2015, I think it was?

Yes, the calendar year -- calendar quarter 3 of calendar 2015.

Yes, right.

The September quarter of 2015.

Was the portal active at that time?

Yes, it was.

But there were fewer customers on the portal at that time.

It was in more of a testing phase at that time.

We may have only opened it up to 5 or 10 customers.

So we were still working through it and getting it up.

But yes, it was available to customers in that time.

Okay.

So I understand that the -- you understand my reasoning for asking that.

Turning to the overhead, you had basically 1 month's worth of overhead -- additional overhead from Goldline.

Could you give us some guidance as to, kind of, what a proper run rate may be for the company on a combined basis for -- with Goldline in there for a full 3 months -- yes, 3 months?

We believe that their OpEx right now is running in the neighborhood of $1.5 million a month, $1.3 million to $1.5 million.

We believe we can get that number closer to $1 million within the next 3 to 4 months.

So that's something we're working on right now.

Understood.

Okay.

And then having said that, you said in the prepared remarks that it doesn't look like Goldline will, on a standalone basis, be profitable to the company in the December quarter.

Would you care to speculate, how things look for March?

Could we see it turn from red ink to black ink in the March quarter?

I would -- yes, I think that's a possibility.

Like I explained earlier, it doesn't take a lot to make things happen there.

It's the beauty of why we love the business and the direct knowledge we get of what these customers are doing and how they are reacting and what they are reacting to.

I think that even with a much higher overhead of $1.3 million to, I think, $1.4 million that we saw in the September, the month of September, which is reflected in this quarter that we're reporting on right now.

We know -- we had a -- September was a very good month even with the higher overhead.

Our goal is to take advantage of those opportunities with a lower overhead if we can.

And that's predominantly managing some of the advertising expenses.

One thing that I will say of note, is that Goldline is an advertiser on the Internet and a big advertiser on the radio.

You'll find them on a number of conservative radio stations.

A lot of their contracts run from December to December.

And the contracts that they are currently in were signed and negotiated prior to the election last year.

And as we have said before, the election has changed things in the precious metals environment.

So we -- one of the things that's our job right now is to make sure that we manage the cost of spend on advertising to find the sweet spot of how much and what to pay for the spaces in the advertising that Goldline is doing.

And we believe that there is a bit of an imbalance right now as it relates to what these contracts -- the environment these contracts were negotiated in and what we are paying in November and December.

So our job, what we want to do and what Goldline's management is trying to do is just to make sure they size their marketing expense versus what their return is.

And as well as what is the environment 28 days out of 30 in a month.

It doesn't mean that there is not going to be 2 great days, but we want to manage this to the lowest day of the month, not the highest.

So that is some of the work we're doing right now.

And as well as I said earlier, we're taking a very close look at their gross profit margin and just making sure that they're competitive in the marketplace.

And that, hopefully, A-Mark's ability to be their sole supplier and to supply them with product at a more advantageous price and as well as less carrying cost on owning their own inventory will result in a more competitive markup for Goldline as well as being at a price that they can be more competitive against their other competitors.

I see.

Do you expect to sign a new round of 1-year contracts?

Or will it be a different term period?

I think that historically, the contracts have been signed on a 12-month basis, December to December, at least that's what we are seeing historically.

But I want to emphasize that, that the view, the political view today is different than it was in October of last year.

And that, the -- most of the precious metals buyers at a retail level, particularly Goldline's customers, are following more conservative radio or TV hosts.

And that their draw and their base, just may not be what today what it was 12 to 18 months ago.

So I think A-Mark being involved and A-Mark's purchase here, one of the areas we've identified is making sure that we look smartly and carefully at what the historical costs have been and just make sure that we're paying the appropriate price per customer lead and customer transaction.

And I believe that, they may be over the last 12 months, that cost per lead or cost per customer has favored the media provider more than its favored Goldline.

Sure.

Understood.

Someone has got to pay Russia's ridiculous salary.

My last question...

Well, I don't mind paying their salary as long as he delivers customers at the right price.

I mean, if he's not -- if he's delivering customers at $1,000, it's a lot different than at least delivering customers at $200.

Yes, tell them you're putting them on commission.

I don't -- I have suggested that.

I guess, my last question is totally separate.

You talked about buying inventory at a discount because there's this product that is coming back to the market all older dated say, American Eagles.

And you are able to get at a discount, so you essentially -- buying it cheaper than what you could buy it for new from the Mint.

When you do that, are you able to successfully hedge that purchase price?

Is there a way to hedge it?

And is there a way to lock in the spread discount at the time of purchase to make it a essentially a sweet transaction?

No, no, we're able to lock-in the price of gold and hedge that.

So as a quick example, if gold's at $1,300 an ounce, the cost from the Mint for brand-new coins, the U.S. Mint, in particular, is about $40 an ounce.

So we're paying about $1,340 for 1 ounce -- 1 ounce new Gold Eagle.

You can buy secondary coins in the market today for about a $20 to $25 premium.

So it doesn't sound like a lot, but it's $15 and it's causing demand.

And it's causing customers who maybe, historically, said I will only buy new coins, they are now willing to take the price discount and take a 2016 dated coin as opposed to a 2017 dated coin.

The other thing that is happening, as we've seen on a sporadic basis, is there are sovereign mints around the world, not the U.S. Mint, but there are sovereign mints around the world that might even discount new coins right now, just to get them sold going into the end of the year, because we are going into a date change and that historically has affected demand a little bit, where demand picks up, for the new coins, these been -- these would be 2018 coins.

So we're just -- we're basically just -- we can't really hedge that $30 or $40 premium.

But we believe that our carry cost is such that we'll take advantage of that and we'll -- we believe we're smart and that we've been doing this long enough, that when we see an opportunity to buy and if our competitors aren't willing to do it, and we're given the opportunity, we're going to take it.

Because when the market turns and coins aren't available at that price anymore and it can turn very quickly, A-Mark wants to be able to supply our customers.

In fact, some of the new customers we're acquiring, we want to make sure that we have product at the right price for those customers.

And I just find that fascinating that, I see no difference between a 2016 stamp and a 2017 stamp on a 1 ounce gold coin, but the customers is treating it like last year's car out of Detroit.

Yes, that and -- but just remember, I mean, we probably have A-Mark offers 200 different products, they're all made with the same metal.

So I agree with you.

But the market dictates what A-Mark needs to do.

And A-Mark's goal is to make sure that when our competitors don't have product, that we have access to product and we have it at the right price.

We've reached end of our question-and-answer session.

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

Thank you, Kevin.

Thanks, everybody for joining us today.

I especially want to thank our investors for their continued support.

I understand that sometimes we test your patience and I want to thank our talented employees for their ongoing contributions to build A-Mark into the global leader in precious metals trading that we all believe it is.

We look forward to updating you on our next call.

And again, thank you for joining us today, and thank you for your support.

Before we conclude today's call, I would 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 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 cost incurred to execute the strategy; changes in the current domestic and international political climate, which has favorably contributed to demand and volatility in the precious metals markets; increased competition for A-Mark's 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 commodities 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 a certain of such forward-looking statements, which speak only as of the date on which they were made.

Additionally, any statements related to 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 not to 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 Investors Section of the company's website.

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

You may now disconnect.