A-Mark Precious Metals Inc (AMRK) 2018 Q2 法說會逐字稿

Ladies and gentlemen, good morning, and welcome to A-Mark Precious Metals conference call for the fiscal second quarter ended December 31, 2017. My name is Adam, and I will be your operator this afternoon.

A-Mark issued its results for the fiscal second quarter and 6 months of 2018 in a press release, which is available in the Investor Relations section of the company's website at www.amark.com. You can find the link to the Investor Relations section at the bottom of the homepage.

Joining us today on our call are A-Mark's CEO, Greg Roberts; President, Thor Gjerdrum; and CFO, Cary Dickson. Following their remarks, we will open the call to your questions. Then before we conclude today's call, I will provide the necessary cautions regarding the forward-looking statements made by management during this call.

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

Now I would like to turn the call over to A-Mark's CEO, Mr. Greg Roberts. Thank you. Please proceed.

Thank you, Adam, and welcome, everyone. Thank you for joining us this afternoon.

As you can see from today's release, our financial results for the quarter and first 6 months of the year were, yet again, impacted by subdued conditions in the precious metals market, which have persisted since the 2016 election. The second quarter was marked by another period of historically low sales levels at the United States Mint, reinforced by the sustained strength of U.S. equities markets as a whole. Despite this, we continue to execute our plan to grow our market share.

Underlying our headline results for the quarter, however, were a couple of key highlights, which, we believe, demonstrate the value of our diversified business model and our expanding suite of offerings.

First, and perhaps more importantly, our finance book continues to perform exceptionally well in -- during Q2. In fact, the number of secured loans increased over 60% year-over-year to a record 2,823. This achievement also helped produce a 10-year -- 10% year-over-year increase in interest income during the quarter.

On top of this, we saw steady improvements in our TDS storage business, with the number of both gold and silver ounces in custody up nicely over the year-ago period. We also experienced solid performance in our custom products business in Q2, reflected by the 27% increase in the total custom product margin compared to the prior quarter.

From an operational standpoint, during Q2, we continued to execute on our strategic initiatives to grow our market share and invest in our business and further diversify and strengthen our product offerings to our customers. We believe that the measured actions we are taking today will put A-Mark in an optimal position to capitalize on profitable opportunities when market conditions improve.

As I spoke about on our last call, we are developing automation tools to meet the increasing requirements of our existing customers as well as any new customers. These include customer-facing account management tools, further enhancements to our online portal and tools to increase our trading hours. Not only will these tools enhance the customer experience, but we expect them to also improve our efficiency and ability to systematically scale our business. We plan to roll out these new features and tools over the coming quarters.

Another area of focus is expanding our retail footprint and distribution capabilities through our strategic acquisition of the assets of Goldline, last August. As a leading direct retailer of precious metals to the investor community, Goldline presents a substantial opportunity for us to leverage its marketing platform to upsell and cross-sell A-Mark's expanding suite of services to Goldline's client base and leads.

I'm encouraged to report that during the second quarter, we improved our operational efficiency after our first quarter integration of Goldline's logistics activities and inventory management into A-Mark's Global Logistics Center in Las Vegas.

I will talk more about Goldline and some of our other key strategic initiatives in a bit. But I would first like our CFO, Cary Dickson, to walk us through the financial details for the fiscal second quarter and first 6 months of '18. Then our President, Thor Gjerdrum, will discuss key operational metrics for the periods. Afterwards, I will return to talk more about operational progress and initiatives as well as our outlook for the remainder of fiscal 2018. Cary?

Thank you, Greg, and good afternoon, everyone. Turning to our financial results for the second quarter and 6 months ended December 31, 2017. Our revenues for fiscal Q2 2018 decreased 21% to $1.68 billion from $2.13 billion in the same year-ago quarter. For the first 6 months of the year, our revenues decreased 2% to $3.84 billion from $3.93 billion in the same period last year. The decrease for both periods was mainly due to a decrease in the total amount of gold and silver ounces sold and lower silver prices offset by higher gold prices and an increase in forward sales.

Gross profit for the fiscal second quarter of 2018 decreased 10% to $8.8 million or 0.53% of revenue from $9.9 million or 0.46% of revenue in Q2 of last year. For the 6-month period, our gross profit decreased 10% to $16.2 million or 0.42% of revenue from $17.9 million or 0.46% of revenue in the same year-ago period. The decrease in gross profit for both periods was primarily related to a decrease in the total volume of gold and silver ounces sold, partially offset by higher gross profits realized from our newly acquired Direct Sales segment, Goldline. The decrease in gold -- in volume of gold and silver ounces during the periods was primarily related to slower market conditions compared to the same period last year.

Now turning to our expenses. Selling, general and administrative expenses for the second quarter of 2018 increased 53% to $9.3 million from $6.1 million in Q2 of last year. For the first 6 months of 2018, SG&A increased 38% to $16.3 million from $11.8 million in the same year-ago period. The increase for both periods is primarily due to SG&A expenses related to our newly acquired Direct Sales segment, Goldline, and other nonrecurring costs, partially offset by a reduction in incentive-based compensation.

For the second quarter of 2018, our interest income increased 10% to $3.3 million from $3.0 million in the same year-ago quarter. For the 6-month period ended December 31, 2017, our interest income increased 11% to $6.4 million from $5.8 million in the same year-ago period. The increase for both periods was primarily due to increases in interest rates and the aggregate value of our secured loan portfolio, partially offset by decreases in other finance product income.

Interest expenses for fiscal -- for Q2 2018 increased 37% to $3.4 million from $2.4 million in the same year-ago quarter. For the first 6 months, interest expense -- expenses increased 30% to $6.1 million from $4.7 million in the same year-ago quarter. The increase for both periods is primarily due to higher usage of our line of credit, a new debt financing agreement related to the acquisition of Goldline, higher average inventory levels primarily related to our product financing arrangements, loan amortization fees as well as higher LIBOR interest rates that went into effect subsequent to the Federal Reserve rate increases.

Net loss for the fiscal quarter of 2018 totaled $0.2 million or $0.03 per diluted share as compared to net income of $2.8 million or $0.39 per diluted share in the same year-ago quarter. For the 6-month period, our net income decreased 94% to $0.3 million or $0.04 per diluted share from $4.7 million or $0.66 per diluted share in the same year-ago period.

On a reportable segment basis, Goldline, our Direct Sales segment, had a $2.1 million pretax loss for the fiscal second quarter of 2018, while A-Mark, our wholesale trading and ancillary services segment had a $2.3 million pretax profit.

Our tax provision for the 3 and 6 months ended December 31, 2017, included the impact of the enactment of the Tax Cuts and Jobs Act, or Tax Reform, which was signed into law on December 22, 2017. Among numerous provisions included in the new law was the reduction of the corporate federal income tax rate from 35% to 21% as well as changes in the carryback and carryforward rules that apply to operating losses, both of which impact A-Mark immediately and in future periods. This tax reform limits A-Mark's ability to carry back the net operating loss to a prior year. Additionally, it results in a partial write-down of deferred assets from 35% to a lower rate, either the 20% -- 28% blended rate that applies for our fiscal year that we're in now, or 21%. This increase in our tax expense -- this increased our tax expense by approximately $0.3 million in fiscal Q2 and for the 6 months ended December 31, 2017.

It is important to note that the SEC has issued a staff accounting bulletin that allows companies to use reasonable estimates to comply with the new laws and provides up to 1 year from the date of enactment to finalize the accounting for these new laws. Based on this SEC guidance, we have estimated the future reversal of deferred tax assets and liabilities to determine the appropriate tax rates these deferred would be revalued. Such estimates will be trued up in the remaining quarters of the current fiscal year, which could cause volatility to our effective tax rate in the remaining part of the year. Further, the company plans to finalize all adjustments within the allowable 1-year measurement period.

Now turning to the balance sheet. At quarter-end, we had $12 million of cash compared to $8.4 million in the prior quarter-end. It's important to remember that we are a net borrower and that we typically pay down our daily -- our balances daily to minimize interest expense. It's also worth noting that the end of the quarter -- at the end of the quarter, we had $7.5 million of long-term debt related to our acquisition of Goldline.

Our tangible net worth at the end of fiscal Q2 totaled $54.0 million, which compares to $54.1 million at the end of Q1.

And finally, as we announced last week, our Board of Directors declared a regularly -- a regular quarterly cash dividend of $0.08 per share. The cash dividend will be paid out on February 27, 2018, to all stockholders of record as of February 13, 2018.

This completes my financial summary. Now I will turn the call over to Thor, who will provide an update on our key performance metrics.

Thanks, Cary. Turning to our key operational metrics for the quarter and first 6 months of fiscal 2018. Looking at our first key metric, gold and silver ounces sold, which represents the ounces of metal we sell and deliver to customers during the period, excluding any ounces recorded in our forward contracts. This is an important metric because it reflects the volume of business we are doing without regards to changes in commodity pricing, which figure into revenue and can mask underlying business trends.

During the second quarter, we sold 376,000 ounces of gold, which is up 13% from the prior quarter, but down 51% from fiscal Q2 of last year. For the 6 months of the fiscal year, we sold 708,000 ounces of gold, which is down 46% compared to the same period last year. Additionally, in the 3 months ended December 31, 2017, A-Mark's percent of purchases from the U.S. Mint of gold bullion products increased 9% from the same year-ago quarter.

Turning to silver. During Q2, we sold 12 million ounces of silver, which is down 18% from prior quarter and down 48% from Q2 of last year.

The second key metric we track is trading ticket volume. This metric tracks the total number of orders processed by our trading desk in Europe and the U.S. 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 volume. During fiscal Q2, our trading ticket volume increased 1% to 30,264 tickets in the prior quarter and decreased 14% from Q2 of last year. For the 6-month period, our trading ticket volume increased 5% to 60,147 tickets compared to the same period last year.

The third key metric we evaluate is inventory turn, 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 turn ratio during periods of increased volatility when trading is more robust, reflecting a more efficient use of our capital. For the second quarter, our inventory turnover ratio was 5.2, which is down 28% from 7.2 in the prior quarter as well as Q2 of last year.

And finally, the fourth metric is the size of our lending business determined by using the number of secured loans we have at the end of the quarter. The number of loans we secured at the -- the number of secured loans at end of the quarter was up 15% to a record 2,823 from the end of the prior quarter and up over 60% from the end of Q2 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. As of December 31, 2017, the dollar value of CFC's loan portfolio totaled $97 million, up 9% from the prior quarter and up 20% 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. Greg?

Thanks, Thor. As I mentioned at outset of the call, we continue to be focused on initiatives and activities to further diversify and strengthen our business and product offerings to our customers. One of the most important of these initiatives today is Goldline, which dramatically expanded A-Mark's distribution, especially in retail. The unique combination of Goldline sales and marketing expertise, coupled with our platform of products, logistics and storage expertise, has created what, we believe, is an unrivaled distribution platform for precious metals globally. This includes the client base that we purchased of more than 150,000 individual customers, many of whom have proven to be exceptionally loyal and recurring buyers, making them ideal consumers to benefit from our product, services and minting capabilities. The overall integration of Goldline's business is progressing as planned. From a financial standpoint, we continue to implement appropriate measures to realize financial synergies between our organizations. This includes further reduction of costs, wherever possible, including reduced advertising spending and headcount to better align Goldline with the current revenue trends and the commensurate market conditions.

Shifting gears to our Las Vegas logistics -- our Las Vegas logistics facility continues to provide us with valuable complementary product and service offerings, including storage. Along that line, we recently received approval from GoldStar Trust Company for IRA storage. By way of background, GoldStar was established nearly 30 years ago and currently has approximately $2 billion in assets and more than 37,500 self-directed IRA accounts under its custody program.

GoldStar reflects one of the many opportunities to rapidly grow our storage revenues.

Another key component of our business is our minting operations through our majority ownership of SilverTowne Mint. The Mint continues to perform well, and provide us valuable production capabilities and supply. From a strategic standpoint, we continue to focus on initiatives to drive growth and profitability through new market initiatives, production efficiencies and special offerings. Along that line, we entered into an agreement with the United States Olympic Committee to be the exclusive domestic distributor of the official Olympic Winter Games 2018 commemorative coins as well as the 2020 Summer Games, adding to the host country coin products. A-Mark will be offering Team USA precious metal products that will be manufactured in the U.S., with selected products minted at the SilverTowne Mint in Winchester, Indiana.

A-Mark will be developing a variety of products with a wide assortment of price points, so all Olympic fans can participate in the full product range delivered through A-Mark's extensive distribution network. The launch of those coins will start this weekend with the opening ceremonies, and we expect good results.

As we look ahead into our current fiscal quarter, we saw sales of precious metals increase in January, with release of the new 2018 sovereign mint physical products. However, over the near term, 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.

Additionally, as Cary touched on, despite some initial tax expense in the second quarter from the recently enacted Tax Cuts and Jobs Act, we believe the new corporate tax rate of 21% and new business investment incentives for capital assets will positively contribute to growth, profits and cash flow over the long term. To that end, we've made significant progress along our strategic roadmap, which has ideally positioned us 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, when market conditions improve.

Now with that, we're ready to open the call for your questions. Operator, please provide the appropriate instructions.

(Operator Instructions) Our first question comes from the line of Sarkis Sherbetchyan from B. Riley.

This is Austin Drake on for Sarkis. You mentioned the increase of the precious metals sales in January. But with the equity market volatility we've seen pickup lately, have you noticed that leading to any change in activity in the precious metals trading?

I mean, the last few days, we've had a significant change in volume, in activity, in call volume. I mean, logistics have been up. I mean, it's a very, very small sample size. I mean, we've been struggling against this for 18, 19 months, since November 2016. So this is -- this volatility that has presented itself in the last few days has certainly been beneficial to our volumes. Physical product, ounces, continues to struggle. But we believe we've positioned ourselves well, and whatever was available to us the last few days with this volatility, starting on Thursday of last week, we've been able to capture and take advantage of. So we believe this is, at least for the last few days, a good indication of what we can do in improving environment -- in an improving environment, but it's a small sample size.

Right. Got it. And did you guys engage in the same level of forward sales as you did in the previous quarter?

No, I think our forward sales were down a little bit in this quarter than they were last quarter.

But again, you can really easily reference that with the ounces that we quote are physical sales. So if you're looking to compare gross revenues, as reported for our SEC filings against actual physical volume, just reference the ounces that we gave in the call today as well as will be available in our queue here in the next couple of days. And that will give you the true -- those numbers are the true physical volumes.

Okay, got it. And with the increase in rates that we've seen as well, how does that impact the lending business for A-Mark?

Our CFC business, which is -- we're very excited and enthusiastic about the growth we've had in that. I mean, 2,800 loans versus 1,700 loans a year ago, that's phenomenal for us, and we're very happy we invested, and we have been investing in that business. The -- in general, increased rates by the Fed are good for us, in the fact that we can generally increase our rates a little bit faster than the rate increase in our cost of funds. Our loans are typically 6-month loans. Some of the loans have automatic adjustments when the prime rate goes up. So they automatically adjust up or down depending on the movement of the prime rate. Other loans we have are fixed for 6 months. And at the renewal point every 6 months, we have the ability to adjust rates up or down or leave them the same, which we manage. For the most part, if our cost of funds goes up, we raise our rates. If we want the -- we have excess capital, or we want the book to raise quicker, we can leave the rates the same. Or if for some reason, we want to pull money back in from loans, we can price the loans up more aggressively, and a portion of those would probably pay off. So we have a great deal of flexibility with what rates we're charging as well as what size of loans we want to manage by what we are able to charge. But for the most part, we've been ahead of the curve over the last 6 months, and we've been raising rates in anticipation of interest rates rising.

Okay, that's helpful. And then I think I missed it, but what was the loss for Goldline in the quarter? And when do you expect that to breakeven?

The loss for the quarter just resulted was $2.1 million on a pretax basis. And we believe that we're going to turn it around quickly. Not as quickly as we anticipated when we purchased it, but a good deal of that result has to do with the environment and the type of customer that's buying gold and silver from Goldline. So although we believe we are aggressively adjusting the costs and expenses and the SG&A at Goldline, we do so very cautiously, because we don't want to overcompensate for the current downturn in ounces sold there. So it's a little bit of a balancing act for us. We've -- we're taking a cautious approach. We have some initiatives that we've already executed over the last 30 to 60 days, and we have other initiatives we're working on to increase revenue as well as just be conscious of the expenses over the next 60 days. But the key, I think, to keep in mind is, as we always do, we point to the U.S. Mint numbers as they relate to our ounces sold. And we believe that we continue to gain traction and gain market share in our percentage of, particularly, gold products. In the last quarter, we sold more gold coins, as a percentage of what the U.S. Mint sold, than we did a year ago. So we know that we're increasing market share across a number of products that we deal in. But the Mint numbers as well as our numbers, ounces sold down 46% in gold and 41% in silver for the 6 months ended, that number is reflective of what our customers are doing. So if our customers are buying less, or if Goldline is selling less, that's reflected in just what the overall market is absorbing right now. And our gauge to how we're performing against our competitors, the only metric we can really look at is the percentage of gold that we buy from the sovereign mints that's public versus what our other -- our competitors, as a whole, are buying in the products we're not getting. So we feel confident that although the ounces are down, we believe that we're making progress in the different investments and initiatives that we've invested in over the last 2 years to increase market share as well as to create income streams, whether it be through CFC or other areas. So that we're able to continue to execute our plan, and we feel good about what we're doing and invest in our business, albeit, with significantly less ounces sold.

Understood. So then are you still expecting an earnings contribution from the Goldline in the second half of this fiscal year?

I would say that in the fourth quarter, yes. But probably not in the third quarter.

Our next question comes from the line of Greg Eisen from Singular Research.

Going -- really following on the Goldline questions and really looking at the SG&A of the whole company, I realize you show -- you'll show the segment breakout on the queue, but we don't have that yet. Is this SG&A level a relatively good run rate, going forward? Or do you expect it to decline a little bit in line with the cuts you'll make in cost of Goldline? Or should we expect the Goldline differential to come from increased revenue and increased profits there?

I think it's a combination. I think that this run rate of overhead in SG&A in the second quarter that you're seeing today, I don't believe that's indicative of a long-term run rate. I think there's work that we've already accomplished that is positively affecting SG&A at Goldline as well as things that we're doing at A-Mark that we believe need to be made in line with the current volumes and the current environment that we're living in. There're certain expenses at Goldline that, to be quite honest, we have been very conservative in cutting, because we don't want to try to set the bar at the lowest level in 10 years of ounces sold in the marketplace. I think that's dangerous for us, because in the event that you get a prolonged volatility in the stock market, like we're getting today and yesterday and the day before, it takes time to ramp back up and hire back employees and hire back advertising contracts. So there is a balance. And although, it looks fairly ugly in the third -- in the second quarter, we believe we've made the right decisions to scale back where we needed to. And we're trying to size the business, at Goldline in particular, and at A-Mark to some extent. We're not trying to size the businesses to be reflective of what we need to spend for the lowest possible ounce counts per month. But we're trying to project what we should spend on what we think are going to ounce counts over the next 12 months. So I -- did we -- we're not able to predict exactly what those -- what that demand for physical metal is going to be in the marketplace. We, certainly, 6 to 8 months ago, realized that it was trending downward. We felt that the Goldline assets and the customer base were important for us for the next 10 years and the next 15 years, not for the next 3 or 4 quarters. We -- and we want to -- it's a balance that we want to preserve the assets we purchased. We want to make sure the assets purchased are preserved and that we have an appreciating asset as opposed to a declining asset. I will say that in Goldline, we have been very encouraged by the clients that were existing at Goldline and what Goldline has been able to do, in spite of the environment to sell existing clients' precious metals. We've been disappointed in the cost of acquisition of new clients and the amount of money that over the last 4 to 6 months, new Goldline customers are spending. Their average purchase is much less than it's been historically. And the cost of acquiring those customers to spend less than they have historically has actually gone up. So that -- we've -- we feel good about what we purchased. We believe that there's still work to do as it relates to where marketing dollars are spent and how much a client is -- their initial purchase is, and what we're paying for that initial purchase. So that's an area that we're -- we're being very cautious with, and we're testing, and we are clearly in the mode of watching the SG&A and making sure that the SG&A matches the ounces and the gross profit we can generate there. But we're willing to invest a little bit in preserving, what we think, if we need to act quickly and ramp back up marketing. And we see an environment where there's been a major shift in precious -- physical precious metal purchasing, that we want to be able to take advantage of that.

Good, good. I'm curious, you mentioned the -- your -- you secured the rights to distribute the Olympic coins. And Winter Olympics start tonight, essentially. Opening ceremony, tomorrow. Are you marketing those Olympic coins through both channels, through Goldline as well as the legacy A-Mark business?

We signed the agreement late. We have created 2 products in silver, both being struck at the SilverTowne Mint in Indiana. They're beautiful products. You will -- you can see them on JM Bullion's website. They're -- we really -- we like the product. But we weren't able to really customize or get any, what we would call, real premium products created. We have some plans to try to co-market with some of the athletes, and we have some -- made some inroads into some co-branding and some co-marketing ideas with athletes in the event that let's say, they perform well or they're successful to win a medal, we think we can create some products specifically to those athletes. But the timeline that we had for this was really a generic Olympic with the rings, 1-ounce round and a 10-ounce bar. The -- we have contracted with JM Bullion, starting tomorrow, in conjunction with the opening ceremonies, to do a significant e-mail marketing blast to their 600,000 customers in line with what we think will be good global advertising from the Olympics as a test, and JM Bullion will have those coins on their site tomorrow. And if anyone wants to see them, you can go look them up. But we're -- we have a number of ideas on this. Fortunately, we have 2 years that the agreement runs through the Summer Games in 2.5 years. So we believe this is an opportunity to, really, have a mainstream product that, maybe, will motivate a nontraditional bullion buyer to purchase.

Good, good. Turning -- you mentioned SilverTowne and the striking the silver medals there. This quarter, in the income statement, the minority interest allocation served to increase the loss. Meaning that you're allocating to minority shareholders' profits being earned by the subsidiary that they own a share of, which, I guess, therefore, is SilverTowne. Could you talk about the profitability of SilverTowne? And what generated that level of profitability this quarter versus, say, last quarter or other quarters where it hasn't been profitable?

It's actually related to the earnout that we did, which is in our filings when we purchased the 51%. There was an earnout allocation to the additional purchase price or the -- if the mint outperformed certain metrics, which it didn't. So what really happened in this quarter was we were able to reverse some potential earnouts that were not earned that we were able to bring back in. So it looked as though it had a profit in it but it was -- that income came from a reversal of a -- an accrual for an earnout that we were required to book. The Mint, as you can imagine, when we purchased the Mint, we were -- all sovereign mints and all mints were manufacturing a lot more ounces than they are today. I think we've very effectively managed cost and managed production at the facility. It's operating currently at a very small operating loss, and it's something that we believe, again, gives us the flexibility that we're investing in the business. We have over 10 million ounces a year of capacity we're not using there right now. As our capacity grows, or if demand decreases even from here, we're going to have to ramp down production. But there are a lot of fixed costs that you just can't reduce. So again, prepared for the future, we have a lot of great products. I think that important -- it's important to note that cost management of the business and production-efficiency and the ability to create products quickly that the public wants to buy that are of the highest quality and that are accepted in IRAs, are accepted by the Olympic Committee, that are -- that we are actually striking some sovereign mint products there today. I think that we're very enthusiastic about what the Mint has been able to do under circumstances that we budgeted 50% to 100% higher ounce volumes there from 2 years ago than what we're actually getting today. So we're very comfortable and we're very, long-term, enthusiastic about the prospects of what the Mint is doing and can do.

Okay, okay. And my last question is regarding your tax provision. I realize the details will be in the queue, and that you had to adjust the deferred tax positions based upon the new rates for that alone. But just on a going-forward basis, you're working with a blended rate for this year, I realize. But looking at the following fiscal year and thereon, the base rate is 21% federal. What do you think is a reasonable level of -- for a tax estimate, going forward, in future years? Above 21?

Yes, I mean, I think your point, we're going through a little bit of turbulence period, because of this transition period that we're in, which is going to muddy for the next 6 months for the rest of this fiscal year with that. I think we're going to quickly settle into a future 21% rate. And then we'll have to add on another, say, 3%-or-so of state and local. So we're going to have a -- we're going to have a much lower effective rate on a go-forward basis than we've had in the past, or what we're having in this particular quarter. So I anticipate a big benefit that we're going to see going forward on both a cash flow basis and also, from an accounting point of view.

And the adjustment this quarter had a lot more to do with timing than it did what ultimately will have as a rate. This quarter, we had this tax plan go into effect late in November or early December. And it affected our tax position because of our fiscal year, and it had a lot more, this quarter, to do with timing as it related to our futures and forwards and our ability to capture tax-loss carrybacks or forwards. And it had to do a lot with unrealized gains and losses, which is what caused the adjustment. There is some, what we believe to be, drafting errors in the bill that there was a single word in the bill that affected how we had to treat certain tax assets. And we believe through our advisers that there is a probability that that word may have triggered something with us that wasn't intended, as it relates to our unrealized gains and losses and our futures and forwards. So we took the most conservative approach. But it is -- we believe that it will be, at some point, remedied. I don't know if it's 6 days or 6 years. But it will be adjusted. And I've heard numbers as high as 200 to 300 drafting errors in this bill that need to be fixed. So this is one that affected us because we're a precious metals business, and we have large unrealized gains and losses as it relates to our hedge position, depending on where the price of metal goes versus whether we realize the gain or loss in inventory. But we realize the gain or loss in our futures and forwards.

Yes, it's -- I understand what you're saying, and it gets pretty complex to explain over the phone. But...

Yes, or even to understand in my head.

Right, right.

But that's why we have Cary and Thor here because they're much better at it than me.

And I've listened to explanations of the tax law from very well-informed people at large accounting firms, national firms. And it's -- they have trouble explaining it in English.

I'll say we're quite fortunate compared to you. You've probably seen other companies that are writing off massive amounts or deferred assets and annual carryforwards, and they're getting multibillion-dollar hits to their P&L. So I -- we feel kind of fortunate that ours is rather minor compared to that.

One of the primary issues involved in the legislation was the effect on taxation on foreign earnings, especially foreign-owned subsidiaries. So in the way you're structured, are your operations for your desks overseas conducted inside a foreign subsidiary?

No, they're just -- we treat them as a services company. And most of the -- all of the transactions are actually sourced back to the U.S. So we don't generate -- it's only a fraction of our income is generated out of that desk. It's all sourced back to the U.S.

And I'll add to that that, not only to Greg's point, it's a very small amount, because it's service fee income. It's all been taxed every single year in the U.S. and our U.S. rate. So there's -- we -- it's not like we're keeping low-tax income abroad. We don't have that situation like the kind of situations you're describing.

(Operator Instructions) Our following question comes from the line of Mitch Almy from Wedbush Securities.

I have one question. It's sort of a bigger picture. Since the spin-off, you've built your facility in Las Vegas. You've bought a mint and -- getting you into manufacturing, and now bought Goldline. Do you pretty much have the suite of products you want? And now with that complement, are you going to forward? Or are there other sort of big things on the to-do list that you're currently not doing that you're looking to get into?

I think that what I really need -- what we really right now is, we need an acquisition that doubles our ounce count sold. I mean, that's really what is driving our growth and our future right now. What we see when ounce counts go up is that all, whether it's the mint or the logistics or A-Mark's trading desk or even Goldline, we see immediate results from that. We saw immediate results from JM Bullion on Friday, Monday, and Tuesday. And we have learned that JM Bullion usually leads the timeline of when we see something. I think that -- we believe, right now that we have -- the company has grown tremendously, and the company has positioned itself to make significantly more money than it has historically in the event that the market conditions and the ounce count demand was to return to previous levels. There's a backlog right now, and there is an inventory of physical gold and silver products out there in the marketplace that is, like, no different than a car manufacturer or somebody whose inventory starts to get backed up. You have to sell-through what you have. And I think that it's very important to note that historically, there was not such a long period of inactivity, particularly in silver. But silver ounces are backed up in the marketplace, and there're plenty of small silver products available. I think we're doing a great job of selling them. But that demand, as you can see from the mint numbers, it's not going up, it's going down. So I think that our initiatives right now are to continue to invest in assets that we think are beneficial to the company for the next 10 years that we believe, whether we're right or wrong, and we're not always going to be right. But we believe that if assets or opportunities are presented to us with assets that are at historical discounts to what we've seen them at in that past, and that we believe whatever the acquisition or whatever the asset is what we might be buying, we're going to invest in it, because it's defensive. It -- we can strike when our competitors maybe are not looking to invest in their future, or they're starting to wind down or slow down. And if we can position ourselves for any events in the future, whether the mark -- the ounce counts go up or down or sideways, we just want to try to add a point or 2 of market share every year or every quarter, whatever the case may be. And any other acquisitions or any other things that we might look at, I believe, would be opportunistic at this point. I don't think that there's a piece missing that we need to have that we're lacking that we're out there chasing, because we feel that we have a piece missing in our plan. I think we feel very good that our plan and our infrastructure right now will support and will increase our business with what we've done to this point. But if there is a client base out there of precious metals customer that have metal, that can either be sold more metal or it can be turned into borrow against their metal at CFC or store their metal in Las Vegas, we're -- we will aggressively pursue those assets to buy revenue stream, which we hope will increase in better market conditions. We want to pay the right price for that revenue today. We would hope that we can -- we're not praying for losses. But in the case of Goldline, we certainly bought assets and we're absorbing some losses as we size them to the current marketplace. There were not sized to sell the amount of ounces they're selling now. And we're investing in them to size them right and have a mechanism to not only defensive, so that we keep customers that have been good for us historically. We don't want to lose customers to our competitors. We need to invest in our customers to keep them as well as give ourselves growth when the market is better. But to answer your question, I think we feel like we have a very good model right now, it needs to be sized to the current activity. And at the same time, we want to be able to, if our average ounce volume in silver is 26 million ounces in 6 months, the last 6 months, which is where we -- what we sold. The good news for A-Mark is that if the market demanded 50 million ounces in the next 6 months, A-Mark would be one of the few companies that could sell it, finance it, produce it and store it out there in the marketplace. And I believe that's valuable to what our investors are buying, is there buying our ability to flip the switch last Friday, and if the market says, we want silver, or we want gold, A-Mark has the ability -- has the resources in place, through financing, through storage, through production, through our desk. We have the best prices and the customers are going to come to us.

So yes, you have what you can do. You just want to do more of it.

Yes.

At this time, this does conclude our Q&A session. I would now like to turn the call back over to Mr. Roberts for his closing comments.

Thanks, everyone, for joining us today. We appreciate your continued support, and we look forward to updating you on our next call, or if need be, I'm here to answer any other questions that I can. But thanks for the continued support, and we feel like we're moving -- continuing to move in the right direction. So thank you very much. Operator?

Thank you. 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 the 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 all 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 including 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, 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 risks of doing business in the commodity market; 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 the dates on which they were made.

Additionally, any statement related to the future improved performance and estimates of revenue 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 would 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, again, for joining us today for A-Mark's fiscal second quarter 2018 earnings call. You may now disconnect.