A-Mark Precious Metals Inc (AMRK) 2019 Q4 法說會逐字稿

Good afternoon, and welcome to A-Mark Precious Metals Conference Call for the Fiscal Fourth Quarter and Full Year ended June 30, 2019.

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

Before this call, A-Mark issued its results for the fiscal fourth quarter and full year 2019 in the press release, which is available in the Investor Relations section of the company's website at www.amark.com.

You can find a link to the Investor Relations section at the top of the homepage.

Joining us for today's 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 the call, I'll provide the necessary cautions regarding the forward-looking statements made by management during this call.

I would like to remind everyone that this call is being recorded and will be made available for replay via a link available in the Investor Relations section of A-Mark's website.

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

Sir, please proceed.

Thanks, Hector, and good afternoon, everyone.

Thank you for joining our fiscal fourth quarter and full year 2019 earnings call.

During fiscal 2019, we continued to execute on our long-term strategic plan to expand our platforms of products and services as well as increase our market share in the global precious metals market.

The year was highlighted by several operational achievements.

Perhaps most notably, the successful $100 million asset base securitization completed in the first quarter as well as our online application and account management system we launched in our Secured Lending segment.

These achievements were complemented by a number of incremental upgrades and initiatives we implemented across our organization with a goal of driving greater efficiencies and an improved customer experience.

Our continued execution and operational progress we made throughout the year helped to drive a meaningful improvement in our key financial metrics as well.

This included a 9% increase in gross profit and a 20% increase in interest income as well as a return to profitability.

We were able to achieve these improvements despite headwinds in the precious metals market throughout the year, including a particularly challenging fourth quarter where demand for physical gold was weak and volumes were down compared to the prior quarter.

Nevertheless, our solid performance for the full fiscal year demonstrates the true durability of our diversified business model.

Before I talk more about our platform business segments and growth opportunities, I'll turn it over to our CFO, Cary Dickson, who will walk you through our financial performance for fiscal Q4 and full year 2019.

Cary?

Thank you, Greg, and good afternoon to everybody.

Turning to our financial results for the fiscal fourth quarter and the full year ended June 30, 2019.

Our revenues for fiscal Q4 2019 decreased 52% to $850 million from $1.77 billion in Q4 of last year.

The decrease in revenues was mainly due to lower forward sales, gold ounces sold and silver prices, offset by an increase in the total amount of silver ounces sold.

Forward sales represented $620 million of the $960 million decrease.

For the full year, our revenues decreased 37% to $4.78 billion from $7.61 billion in the same year ago period.

The decrease is primarily due to lower forward sales representing approximately $2.8 billion of the aggregate change, lower gold and silver prices and lower gold ounces sold, offset by an increase in the total amount of silver ounces sold.

To further clarify the decrease in sales for the quarter and the full year, it is important to note that the company fully hedges its inventories at all times, typically, through a combination of forwards and futures contracts.

Forward sales contracts executed for hedging purposes are required to be included in revenues where future sales contracts executed for similar purposes are not.

During the most recent fiscal year 2019, the company entered into significantly fewer forward sales contracts for hedging purposes than in the previous fiscal year, which materially decreases revenues.

In other words, the majority of our revenue decrease in fiscal '19 is due to lower forward sales and not indicative of a material change in our physical sales traded for profit purposes.

This is one of the primary reasons the company considers ounce volumes to be a key metric of the performance, and we remind investors to review both ounce volume trends as well as gross profit dollars to gain a more complete view of the company's performance.

Gross profits for the fiscal Q4 2019 period increased 11% to $6.5 million or 0.6% of revenue from $5.8 million or 0.33% of revenue in Q4 of last year.

The increase in gross profit was primarily due to improved gross profits from our Wholesale Trading & Ancillary Services and Direct Sales segments.

For the full year, gross profit increased 9% to $32.0 million or 0.67% of revenue from $29.4 million or 0.39% of revenue in fiscal '18.

The increase in gross profit was primarily due to improved gross profits of our Wholesale Trading & Ancillary segment and our Direct Sales segments, offset by lower trading profits.

Turning to our expenses.

SG&A expenses for fiscal Q4 of 2019 increased 10% to $8.4 million from $7.7 million in Q4 of last year.

The increase was primarily due to higher compensation costs within the Wholesale Trading & Ancillary Services segment related primarily to the retention and filling a number of key management positions, nonrecurring severance costs in our Direct Sales segment, partially offset by lower external consulting costs primarily in the IT and the finance area.

For fiscal 2019, SG&A expenses decreased 3% to $32.5 million from $33.4 million last year.

The decrease is primarily due to a decrease in IT consulting-related costs of $0.8 million, lower investigatory acquisition costs of $0.6 million, lower advertising costs of $0.8 million and lower legal costs of $0.4 million, which were partially offset by higher compensation costs of $1.3 million.

Interest income for fiscal Q4 2019 decreased 6% to $5.3 million from $5.6 million in Q4 of last year.

The decrease was driven primarily by lower interest income associated with our Wholesale Trading & Ancillary segment, partially offset by higher interest income associated with our Secured Lending segment.

For the full year, interest income increased 20% to $19.3 million from $16.1 million in fiscal '18.

The increase is primarily driven by an increase in interest income of our Wholesale Trading & Ancillary Service segment of $2.1 million, of which $1.7 million related to customer repurchase arrangements as well as an increase in interest income from our Secured Lending segment of $1.0 million due principally to an increase in the value of the secured loan portfolio.

Interest expense for fiscal Q4 2019 increased 13% to $4.7 million from $4.2 million in Q4 of last year.

The increase is primarily due to the newly issued notes payable related to our Secured Lending segment, partially offset by a reduction of interest expense from product financing arrangements and the repayment of the Goldline Credit Facility.

For fiscal '19, interest expense increased 23% to $17.1 million from $13.9 million last year.

In comparison to the same year ago period, interest expense increased $4.3 million related to the recently issued notes payable and $1.0 million related to liability on borrowed metals.

This was partially offset by a decrease of $1.1 million related to the product financing arrangements, $0.4 million related to the Trading Credit Facility and $0.3 million related to the repayment of the Goldline Credit Facility.

For the fourth quarter of 2019, our net loss totaled $823,000 or $0.12 per diluted share.

This was an improvement from a net loss of $3 million or 0.43% -- or $0.43 per diluted share in Q4 of last year.

For the full year, net income totaled $2.2 million or $0.31 per diluted share, an improvement from the net loss of $3.4 million or 48% (sic) [$0.48] per diluted share in fiscal '18.

Shifting gears to our balance sheet.

At quarter end, we had $8.3 million of cash compared to $6.3 million at the end of fiscal '18.

Our tangible net worth at the end of the quarter totaled $57.8 million, which compares to $58.1 million at the end of the prior quarter and $53.4 million at the end of fiscal '18.

That completes my financial summary.

Now I'll turn the call over to Thor, who'll provide an update on our key performance metrics.

Thor?

Thanks, Cary.

Turning to our operational metrics for the fourth quarter of fiscal 2019, we sold 350,000 ounces of gold in Q4, which was down 26% from the prior quarter and down 40% from Q4 of last year.

For the full year, we sold 1.8 million ounces of gold, which is down 6% from the 1.9 million ounces we sold in fiscal 2018.

Turning to silver.

We sold 12.5 million ounces in Q4, which was down 25% from the prior quarter, but up 46% from Q4 of last year.

For the full year 2019, silver ounces sold increased 46% to 67.6 million ounces from 46.5 million ounces in the comparable period last year.

Looking at our second key metric, Wholesale Trading ticket volume, which represents the total number of product orders processed through our trading desk decreased 23% to 24,300 tickets from the prior quarter and decreased 6% from Q4 of last year.

For the full year, trading ticket volume increased 5% to 120,300 tickets.

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

Inventory turnover is a measure of how quickly inventory has moved during the period.

For the fourth quarter, our inventory turnover ratio was 3.0, which was down 35% from 4.6 in the prior quarter and down 33% from 4.5 in Q4 of last year.

For the full year, our inventory turnover rate was 16.6% compared to 26.8% in fiscal 2018.

The decrease in our inventory churn rate was primarily due to lower volumes of ounces sold on forward contracts and by higher average borrowed metal inventory balances, partially offset by lower average product financing arrangements during fiscal 2019 compared to the prior year.

And finally, the number of secured loans at the end of the quarter totaled 2,806, which is up 9% from the prior quarter and down 20% from Q4 of last year.

However, as of June 30, 2019, the dollar value of our CFC loan portfolio totaled $125.3 million compared to $110.4 million in Q4 of last year, an increase of 13% from the prior quarter and 13% from Q4 of last year.

That concludes my prepared remarks.

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

Greg?

Thank you, Thor.

As I've emphasized on our last few calls, the hub of our vertically-integrated operating structure is A-Mark Global Logistics, or as we call it AMGL, which provides end-to-end logistics services to e-commerce leaders, our wholesale counterparts as well as IRA custody and precious metals storage solutions.

It was a busy and productive fiscal year for AMGL, highlighted by the successful implementation of several strategic initiatives designed to increase our revenue streams and service offerings.

Our new Vice President of Logistics, Chris Hårte, has spent the last few months on the job focusing on cost-reduction measures and improving performance metrics, all in an effort to generate new business for AMGL.

In May, we launched a program at AMGL to streamline our customer deposit and returns processes.

While it's still in its early stages, the new program has expedited the overall processing, improved the customer experience and product quality as well as reducing our shipping and packaging costs.

It was a banner year for our Secured Lending segment.

Most notably, we completed a $100 million asset base securitization, or ABS, giving our subsidiary CFC the necessary capital to grow its business and loan portfolio to record levels.

Our team was able to fill the ABS with secured loans in just 10 months, and we are actively looking to expand the facility.

As I've said before, by growing the value of our portfolio and introducing complementary finance products, we will increasingly benefit from the revenue diversification and interest income.

In May, we launched CFC's new website and online application and account management system, which marked the latest development in our ongoing strategy of injecting further technology into A-Mark's offerings.

These improvements have helped us efficiently secure new business, improve the customer service and establish an environment for continuous innovation.

Also during the fourth quarter, we launched a Goldline branded e-commerce site.

Purpose of this site is to augment our telephone sales as well as capture smaller order size.

While it's still in its infancy, we are excited about Goldline's new e-commerce offerings and the response we are seeing from customers.

Our majority-owned minting facility SilverTowne continues to provide our company with a sustainable competitive advantage and has us uniquely positioned to meet any potential surges in demand for physical metals.

SilverTowne Mint continued to perform well in fiscal 2019, given its confidence to increase our majority stake to 69% as well as to extend our capital investments in the SilverTowne Mint.

These investments have substantially improved production efficiency, improved our product quality and enhanced our design and minting capabilities, which allows us to offer more unique and differentiated products to customers.

It's worth noting that in addition to the Mint's proven ability to ramp up to meet surges in precious metal demand, it can also cost effectively ramp down during slower periods to reduce operating costs.

On top of this, the products that Mint produces for third parties allows the Mint to level load production as well.

As I mentioned on our last call, we acquired a new die production capabilities technology and equipment, all of which is housed in Nevada and support the SilverTowne Mint.

The asset purchase and integration has gone exceptionally well.

We are pleased with the continued improvement in our capabilities and product quality as we strive to fabricate and distribute best-in-class private and sovereign mint products.

During fiscal 2020, we plan to devote resources to new growth areas with the goal of furthering our competitive position and expanding our platform.

This means further scaling of our business, both operationally and financially, with expanded new offerings, which we believe will in turn increase the predictability and profitability of our model.

In the first few months of fiscal 2020, we have seen that geopolitical uncertainty and global economic concerns have resulted in strong upward movement of both gold and silver prices, particularly, during the month of August 2019.

While similar factors have historically resulted in robust demand for precious metals product, during our first fiscal 2020 quarter-to-date, we have not experienced unusually high demand, and product premiums have remained range bound.

A prolonged continuation of these conditions has the potential to improve performance in the near term.

In the last 4 to 6 weeks, we have started to see sign of an uptick in demand and an increased volatility as well as product interest.

We remain cautiously optimistic about our prospects, especially, given the macro backdrop, geopolitical environment and upcoming election year.

Looking at fiscal 2020 more broadly, we will continue to act opportunistically in the market, taking advantage of attractive near-term trading opportunities, while further scaling our business into continued success over the long term.

Today, A-Mark is in the most diversified position in our company's history, with the strongest and most robust platform, customer base and business model.

We are confident these factors will translate into financial and operational outperformance in 2020 compared to last year as well as more predictable growth and increase profitability in the years ahead.

Lastly, I want to add that this will be Cary's last earnings call for A-Mark.

Cary has accepted a new position that is closer to his home and will eliminate his long commute.

While we are sad to see him go, he has positioned the company well for internal succession.

And I am happy to announce that Kathleen Simpson-Taylor, our current Executive Vice President and Corporate Controller, has accepted my offer and will be assuming Cary's role effective September 30, 2019.

Kathleen's background, prior A-Mark experience and proven performance make her the ideal candidate for this role.

I want to turn the call over one more time to Cary, so he say a few words.

Thank you very much, Greg.

I appreciate that.

I want to say to everybody, I am very proud to have been part of the A-Mark's growth and expansion of the business to where it's become today.

And I want to thank Greg and the board for supporting my decision to make this move.

I believe the company is well positioned to make this transition.

And I also believe Kathleen is the right candidate to assume this role, which will allow continued commitment to the quality that we have here and the continuity that we have within the finance function.

Hector, do you want to continue?

(Operator Instructions) Our first question comes from the line of Chris Sakai with Singular Research.

I just had a question on your inventory level.

Can you give a breakdown as far as the percentage, how much is gold and how much is silver?

And as compared to previous inventory levels, I mean, how has those -- the level of gold and silver increased or decreased?

We don't generally break that down, although we have -- we do have some reports internally that we do see the mix.

I would say that the inventory currently is significantly weighted heavier to gold right now, which has a little bit to do with what has been transpired in the marketplace between June, July and the beginning of August.

The current move in gold prices, which has been significant, and we welcome them and we -- that's the business we're in, has resulted in most -- mostly institutional buying and most of the movement in gold has been driven by purchases and inflow into the ETFs, particularly, GLD, which you can see in their reports.

It has resulted though in more physical selling of gold, where a number of retail clients have taken some chips off the table and they have sold gold into the market and have been more sellers.

And then the newer buyers have not yet performed on new gold coins.

So what that means is, A-Mark has been a fairly significant buyer of older backdated gold coins, which has increased our mix in our inventory and we have been selling fewer new gold coins, and you can see that, particularly, in the U.S Mint numbers, which we always point people to, but the sale of new mint products up until about 6 weeks ago had been fairly stagnant at the U.S. Mint and the Canadian Mint and other sovereign mints.

In the last 6 weeks, we have seen a pickup in gold sales to the retail public, and we have taken advantage of that.

Fortunately, we have had an inventory of those coins, which built up in July and June.

In the last 4 to 6 weeks, we've been able to take advantage of that.

So I don't have any exact numbers for you on this call, but for the most part, our gold has -- gold inventory has been a little higher over the last few months.

Okay.

All right.

And then as far as Goldline business goes, do you -- how has that been going?

Is it return to profitability or is it close?

We're still not profitable there.

We're still working on it.

Again, what we've seen in the last -- in June and July, in particular, the end of last quarter and the first month of this quarter, is we found more precious metals -- historic precious metals retail buyers have been selling back as opposed to buying new product at these prices.

So we've kind of gotten through those headwinds as golds move from about $1,300 up to $1,500.

And in the last 6 weeks, we've seen a bit more volatility and we've seen some fairly good price movement, particularly, in gold up and down.

And that has resulted in a little bit better sales at Goldline.

And before, I would say, August 15, this had been predominantly a gold move where gold prices had moved significantly and silver prices had been very stagnant.

In the last 6 weeks, if you just look at the charts, you can see that silver has made a fairly good move.

It's retracted a little bit, but it made a pretty good move in the last 4 to 6 weeks, which has resulted in a little bit more silver activity for us.

So again, June, July very quiet, particularly, in retail sales of gold products across the board and through most of our customers and platforms.

Last 6 weeks, much more activity and a move in silver, which has helped throughout our silver products across all of our sales platforms.

(Operator Instructions) At this time, this concludes our question-and-answer session.

I'd now like to turn the call back over to Mr. Roberts for his closing remarks.

Thank you, Hector.

Thank you all for joining our call today.

As always, I appreciate the interest and continued support, and we look forward to keeping you apprised of our company's progress.

Goodbye for now.

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 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 costs incurred to execute this 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 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 dates 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 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 for joining us today for A-Mark's earnings call.

You may now disconnect.