A-Mark Precious Metals Inc (AMRK) 2020 Q1 法說會逐字稿

Good afternoon, and welcome to A-Mark Precious Metals conference call for the fiscal first quarter ended September 30, 2019.

My name is Gwen, and I will be your operator this afternoon.

Before this call, A-Mark issued its results for the fiscal first quarter 2020 in its 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 top of the home page.

Joining us for today's call are A-Mark's CEO, Greg Roberts; President, Thor Gjerdrum; and CFO, Kathleen Simpson-Taylor.

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 the management during this call.

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

Thank you for joining our fiscal first quarter 2020 earnings call.

In the first quarter, we leveraged our diversified platform and long-standing relationships to capitalize on the modest increase in demand that we experienced for our physical products during this period.

This incremental demand compared to fiscal Q4 was characterized by higher average spot prices for gold and silver, which were up 12% and 11%, respectively, yet lacked large premium spreads historically associated with similar levels of demand and volatility.

Nevertheless, we were able to take advantage of some attractive trading opportunities in the quarter while realizing broad-based improvements across all of our segments, especially in the latter half of the quarter.

Of note, our Secured Lending segment performed especially well, as evidenced by the 27% sequential increase in the number of loans outstanding and an increase in interest income from our higher average loan portfolio during the quarter.

This performance, coupled with the increases in both gold and silver ounces sold in Q1, drove sequential improvements in our financial results for the first quarter compared with last quarter, including a 74% increase in revenue and 29% increase in gross profit.

Before I provide an update on our individual segments and outlook, I'll turn it over to our new CFO, Kathleen Simpson-Taylor, who will walk you through our financial performance for fiscal Q1 2020.

Thank you, Greg, and good afternoon, everyone.

Our revenues for fiscal Q1 2020 decreased 5% to $1.48 billion from $1.57 billion in Q1 last year.

The decrease in revenues was primarily due to lower forward sales of approximately $0.4 billion, offset by higher gold and silver prices and higher gold and silver ounces sold.

Gross profit for fiscal Q1 2020 decreased 2% to $8.3 million or 0.56% of revenue from $8.5 million or 0.54% of revenue in Q1 of last year.

The decrease in gross profit was primarily due to lower gross profits earned by our Wholesale Trading & Ancillary Services segment, offset by higher gross profits earned from our Direct Sales segment.

SG&A expenses for fiscal Q1 2020 increased 7% to $8.3 million from $7.7 million in Q1 of last year.

The increase was primarily due to an increase in overall compensation costs of $0.2 million and deductibles on insurance claims of $0.3 million, which were partially offset by a decrease in our consulting costs of $0.1 million.

Interest income for fiscal Q1 2020 increased 27% to $5.8 million from $4.6 million in Q1 of last year.

The increase was primarily due to interest income earned by our Secured Lending segment as well as other finance product income earned by our Wholesale Trading & Ancillary Services segment.

Interest expense for fiscal Q1 2020 increased 45% to $5.1 million from $3.6 million in Q1 of last year.

The increase was primarily due to higher overall average debt levels and interest rates associated with the Secured Lending segment's asset-backed notes issued in September 2018.

For the first quarter of fiscal 2020, our net income totaled $128,000 or $0.02 per diluted share compared to net income of $1.5 million or $0.21 per diluted share in Q1 of last year.

Now looking at our balance sheet.

At quarter end, we had $12.5 million of cash compared to $8.3 million at the end of our fiscal 2019.

Our tangible net worth at the end of the quarter totaled $58.6 million, up slightly from the $57.8 million at the end of the prior quarter.

That completes my financial summary.

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

Thank you, Kathleen.

Looking at our key operational metrics for the first quarter 2020.

We sold 576,000 ounces of gold in Q1, which is up 65% from the prior quarter and up 8% from Q1 last year.

Turning to silver.

We sold 20.9 million ounces in Q1, which was up 67% from the prior quarter and 14% from Q1 of last year.

Wholesale Trading ticket volume, our second key metric, which represents total number of product orders processed by our trading desks, increased 49% to 36,200 tickets from the prior quarter and increased 13% from Q1 of last year.

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

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

For the first quarter, our inventory turn ratio was 4.4, which is up 47% from 3.0 in the prior quarter and down 20% from 5.5 in Q1 of last year.

And finally, the number of secured loans at the end of the quarter totaled 3,571, which is up 27% from the prior quarter and up 109% from Q1 of last year.

The dollar value of our loan portfolio totaled $150.5 million, which is up 20% from the prior quarter and up 84% from Q1 of last year.

That concludes my prepared remarks.

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

Greg?

Thank you, Thor.

As you can see from our financial results, A-Mark continues to benefit from its diversified platform and business model as well as its vertically integrated structure.

As many of you know, the hub of our model is our logistics operations, which supports our 3 segments by providing end-to-end logistics services to e-commerce leaders, our wholesale counterparts as well as IRA custody and precious metal solutions.

The strategic measures we implemented last year have increased the efficiency of A-Mark's overall operations while reducing some specific costs, enhancing the end customer experience and improving profitability at A-Mark Global Logistics.

In addition to our improved incremental financial performance, our team continues to pursue strategic initiatives to promote new business development and additional revenue opportunities for customers.

Another competitive advantage that A-Mark has is our dynamic minting capabilities through our majority-owned minting facility, SilverTowne.

In addition to SilverTowne's ability to increase production to meet surges in precious metals demand, the mint can also cost effectively decreased production during slower periods and reduce operating costs.

The mint is currently producing 170,000 ounces per week with the capacity to increase production to 300,000 ounces per week if the market demand increases.

We have taken several steps at the mint over the last 12 months to improve our product quality.

We've enhanced our design capabilities and reduced our cost.

These measurements are probably best reflected by the meaningful increase in customer demand and purchase orders for our silver round and bar products.

In our Direct Sales segment, one of the newer programs we're offering customers is our metal buyback program, which we launched in June.

The program provides an efficient marketplace for retailers and wholesalers of precious metals to sell product back to A-Mark.

Supported by AMGL, we have established a platform to reliably and securely, systemically automate the buyback process.

We've seen buyback activity increase in the current rising metals market, allowing us to purchase and resell products at favorable margins.

We've also made some additional progress optimizing the Direct Sales segment.

Over the past months, we have taken additional measures to reduce fixed and variable costs to more appropriately align the segment's market spend and headcount with its revenue levels.

In terms of the segment's market strategy, we focused our efforts on the highest ROI channels while leveraging our expansive customer list.

We continue to be optimistic about the long-term potential of this segment and look forward to updating you on its progress in coming quarters.

Going forward, we are continuing to invest in strategic growth areas to capitalize and further increase our market share within our industry.

This includes expanding our Secured Lending segment to respond to favorable trends in the market as well as investing in A-Mark's digital transformation to drive additional operational and financial efficiencies across our business over the long term.

As we look forward, we are cautiously optimistic about our prospects this year, especially given the macro backdrop and upcoming election.

The investments and initiatives we have successfully completed have positioned us well and give us increased confidence in our organization as a whole.

We believe these factors will support a strong fiscal 2020 with more predictable growth and increased profitability.

Gwen, please provide the appropriate instructions for the Q&A.

(Operator Instructions) And we'll take our first question from Chris Sakai with Singular Research.

I had a question on the increase of the number of secured loans.

Just wanted to see what were the main drivers there as far as the increase goes.

I think that in this particular part of our business, the increased activity in the precious metals spot prices and the rise in the prices have increased the activity of new loans as well as increasing our overall loan book.

And when we have rising prices, we generally don't have liquidations or we don't have margin call situations that reduce our loan book.

So I think that just the overall activity and some of the macro news events that were going on caused our customers and our loan customers to be more active.

Okay.

Great.

And then as far as the Direct Sales segment goes, you mentioned there was some gross profit improvement there.

Can you elaborate more on that?

Well, we did have a bit more active gross sales environment.

So our sales have been a little bit -- were a little bit better, particularly in September.

And we were able to cut some more costs, so our net loss was less than what it had been in the previous quarter.

So we've seen improvement there.

(Operator Instructions) We'll go next to Mitch Almy with Wedbush Securities.

One thing about the quarter that I was hoping maybe you could go into, we had a large, sequential increase in both gold and silver ounces.

And if you could maybe walk through maybe the last 6 months, what you've seen there in terms of a progression of the coin business since May.

I know there was a downturn at the end of spring.

If you could walk through that, that would be helpful.

Right.

The good news is our ounces are up.

So that's a good reflection on the demand that's outside in the marketplace that's going on around us.

So the increase in ounces is encouraging for us.

What -- particularly from the April, June quarter, just in specific numbers, I think it's in the release.

But we sold 350,000 ounces of gold approximately in April, June.

And in July and September, we were able to sell about 580,000 ounces.

The profitability of those ounces sold was definitely lower in last quarter than it was this quarter.

And really for the first 1.5 months to 2 months of this quarter that we're reporting on, our actual gross profit dollars generated from selling those ounces was down, which kind of creates this unusual situation where we generally talk about ounces being up and that being a very direct driver of our net profitability.

In this specific case, because of what happened over the last 6 months, which we've talked about before, there has been a -- with the rising price of gold in particular, there has been a large amount of ounces that we have bought back off of the secondary market.

And we make less money per ounce on coins we buy back in the secondary market, or what we call backdated gold coins, than what we would make on a brand-new gold coin that we buy from either the U.S. Mint or the Royal Canadian Mint.

So it's kind of good/bad.

The good news is we did see an increase in ounces, but the gross dollars we make per ounce sold was down just due to the fact that the backdated coins sell cheaper than the new coins.

And if you look at the mint numbers for the last 2 quarters, the new coin mint numbers were down significantly.

And that is reflective of the fact that a lot of secondary coins were being sold in the marketplace at a cheaper price than you can buy brand-new coins for.

So we had a little supply-demand imbalance, which brought the cost or premium over melt down on the backdated coins.

The new products and new coins from the mints, which we make a little bit more money on per ounce, that they're -- they sell at a fixed number.

They don't adjust those numbers.

So what happens is that you see purchases being pushed towards backdated because they were significantly cheaper in these 2 quarters than reflective in our dollars per ounce we make, we make a little bit less.

Now as we said in my opening statements, July and June were particularly slow in this area.

September was better.

And October has also -- is showing good signs where we're selling good ounces and we're making a little bit more per ounce.

So I think it was a little bit of an anomaly, particularly in June and July and maybe the first half of August.

But we do see that kind of shaking itself out in the marketplace.

And we're going to see some significant demand increases as we roll into January, where we have a date change, particularly in the U.S. products, where you have a big push in the January period where you -- you'll have 2020 coins.

And those will be the focus, so a lot of ounce demand will shift back to new coins and probably a little bit away from backdated coins.

Okay.

One other question.

The loan book behind the asset-backed securities, that's pretty much grown, what was that started, about a year ago?

And I know we've had a couple of quarters sort of been -- there's been some turnover in the loans.

It's probably been a bit of a learning experience, but can you comment a little bit on the turnover of the loans?

You did some in your opening remarks.

But also if you got it to this size in a year, where -- what's the chance and what are your ideas on getting it to, say, $200 million and $250 million maybe a year out?

Well, I think that I need that crystal ball really bad if you have it.

That's going to be reflective of what the precious metals prices do and whether or not we get significant material drop very quickly in silver, in particular.

Silver is down about $0.60, $0.70 today, and gold was down about $20.

Those are pretty good downswing moves, and that is -- that alone is going to stunt the growth a little bit of the loan book because you're going to have new loans coming in, but those new loans coming in are going to slow because people aren't confident the price is going up.

I mean people do ultimately buy because they think that what they buy is going to be worth more money down the road.

So if you have a slowdown in demand because prices have kind of peaked or topped and they -- and you have some drops, that's going to slow the rate of the loans and the new loans coming in.

And then you could -- or will see, depending on the drop, you'll see some liquidations where we have to margin our loans because the underlying collateral is worth less and their equity has dropped to a point that they get a margin call.

I think that one thing I can say is that unlike August of last year and September of last year, where we had a significant drop in the value of silver, and that caused us to lose a very large chunk of our loan book which we have built back up over the last 12 months, that particular circumstance back in August, September of 2018 was defined a little differently than it is today.

We went into August and September with a lower equity level on average in our loans so that a drop caused margin cost to come a little quicker.

There wasn't quite as much cushion between the equity and the moment or the ratio where we do a margin call.

If you look at our book today, that cushion is much healthier, and there's a much -- there's much more of a cushion between where we would start talking to a customer about a margin call and where we would actually do a margin call.

So just the overall positioning of the book and where the loans are versus the collateral at certain spot prices, we are a little bit healthier today than we were a year ago, which would indicate we'll have less liquidations.

Now that could all change.

If silver is down $2 tomorrow, we're going to be in a situation where we're going to lose some loans, but I would say that we're fairly healthy right now.

The other factor was that last year, as we've talked about before, I believe, we've talked -- we have discussed this, that our closing of our ABS came right in conjunction within a couple of weeks of this loss of loans due to the drop in price.

So we had a situation where we lost quite a significant amount of loans due to what we just discussed.

And then on top of that, we had to fill the ABS.

And part of the ABS structures, we can put inventory in there into the ABS.

And that we had a shortfall of loans, and we had a higher percentage of inventory.

Today, we're fortunate that the ABS is 100% filled with loans, and we actually have excess over and above the ABS that were currently in our loan portfolio so that we also have a cushion there in the event that we were to lose some loans in the ABS, we can fill it back to the top or have it 100% filled with loans we already have.

So there was again a very unusual situation.

As you said, we try to learn from all of these.

But August, September 2018 had some situations that were really unique to our timing of closing our ABS as well as the drop in price that isn't likely to manifest itself the exact same way again if that makes sense.

If I missed anything, just ask.

I'll clarify.

No.

Timing always works against you, right?

(Operator Instructions) We'll take our next question from Rick Fearon with Accretive Capital Partners.

Just a couple of quick questions.

I wonder if you could share any of the specifics about the additional drivers for growth in the Secured Lending business that you had alluded to in your comments.

So you're talking about the increase in both loan book and then new loans?

Correct.

And it was -- I didn't know if it's kind of pursuing some additional strategies or if it's really just the digital improvements you had referred to, or if there's something else that you think will be driving the growth.

I think it's a combination, but I would point towards 3 fairly important drivers, as you say.

One, we had a good run-up in gold and silver price.

So you had a call to action that people felt they needed to add to their positions.

And the way CFC works is if a customer feels metals are going up and they have excess equity or they feel like they have a profitable investment, they might then buy more metal, and they might open a new loan.

So when we talk about the growth in actual loan numbers, those are individual loans.

But they might -- there might be 4 loans with one human.

So it's driven by that particular borrower or that particular investor feeling confident or comfortable that they want to add on to their position.

That's probably, I would say, 50% of what was driving the growth in this period.

The other -- 2 other factors which I think we control, which is unlike the price of metal that we don't control, we've invested quite a bit over the last year in a new website for CFC.

And we've invested in more, I guess, I would call it, user-friendly-facing technology that can aid a customer in seeing what his portfolio looks like, what his loan looks like.

We've been able to now collect interest payments online from customers, which we didn't use to do.

And the website, we believe, is really going to propel us forward.

We can now feel comfortable that if we wanted to start some different marketing strategies to address the need to increase our loans, we think that website is fully developed now and is going to be a great tool for us to just make it easier for customers who don't want to be contacted or they don't want to talk to somebody, who just want to fill out the loan app or fill out the information they need to online.

We feel really good about that, and we think that's a big add for CFC.

And then we have had some success in some marketing of CFC over the last 6 months, particularly the last 3 months, where we've been picking up some loans from some new areas that either we haven't had before or we figured out a way to get some segments of customers with metal to -- or collectibles to respond to us.

We've had some initial success in some marketing we've done.

So I think it's those 3 things that are probably driving this quarter's growth.

Is some of the marketing targeted towards the SilverTowne customers as well?

And is that leading to additional business there?

I think that in this particular product, which let's just call it CFC silver bullion, the SilverTowne product fits very nicely in that in that the SilverTowne is great quality as well as it's one of the cheaper products out there.

So yes, you are correct that we do have a lot of SilverTowne product that's backing a number of our loans, and it's used by some of our loan originators.

They use the SilverTowne product as the metal collateral that they sell.

So having SilverTowne is good for us.

But in addition to that, a lot of the loans are backed by just 100-ounce bars or 1,000-ounce bars of silver.

It depends a little bit on what the borrower wants.

But yes, as we talk about our integrated strategy, having storage in Las Vegas, having the relationships with Brink's JFK, having the mint that can custom-make product as we needed to support some of the promotions we try to do, those are all positives.

Okay.

And you talked about the loans kind of blossoming into additional loans with the same borrower.

Are -- what -- I imagine the answer to this is it depends and it varies.

But what is the average duration of the loans?

Do you have those?

Is CFC mature enough to provide any of those statistics yet?

I mean absent a drop in price and a margin call, the loans are very sticky, which is why we love the business.

You see -- we see very little voluntary turnover.

In fact, generally, people get in almost into kind of an accumulation program, where I believe that certain macroeconomic or macro political developments cause a client to want to add to their position.

And so you -- as it relates to the loan portfolio, we like steady rising prices.

That's good for us.

As we've seen this last couple quarters, these prices being up helped the loan book, but it also caused us to have an imbalance, as I spoke, on what we're buying back in the secondary market because today, you have investors that are a little -- they can trade so much cheaper than they used to and they can do it online, they can trade over the phone.

So you're getting investors that are buying and selling more frequently because just the cost of doing that or the fact they have it in storage is allowing them to do that, which, we recognize, is why we sometimes are now getting imbalances on what we're buying back versus what we're selling.

But it plays the same way in the loan book, that what might help one segment of our business may also hurt another segment.

I think what we're most encouraged about this particular quarter, quarter-over-quarter is all 3 of our segments, Wholesale Trading, Secured Lending and our Direct Retail sales, all 3 of those segments saw improvement in this quarter.

And as I said earlier, most all of our heavy activity happened towards the end of July and August -- I'm sorry, in August and September after we had a particularly slow actual losing month in July.

So I am encouraged that we're -- we seem to have been able to find an environment and we're pulling the right levers, where all 3 of our main segments are improving, which wasn't what was happening if you go back to Q4 last fiscal year and as I said, the first half of this Q1.

So you can't always see it if you're on the outside.

I mean we feel it on the inside.

We feel what's going on.

We feel -- we have real-time results on what we're doing.

And I'm trying -- as we try to articulate those to investors, sometimes you need to dig a little deeper, which is what you're doing.

Yes.

And so that improvement presumably has continued in October, November.

October was probably what was improved from September.

And thus far, November has been what we would say is solid.

It will be interesting to see what happens here.

It seems like every time we're on one of these calls, something happens with the price of gold and silver that makes us sound like we don't really know what's going to happen next.

I mean you did -- we kind of -- the last 3 weeks, we were in a very tight range.

Gold traded pretty much between $1,480 and maybe $1,505.

And it was in that range for, I would say, 4 to 5 weeks.

Today, for the first day, we saw a downdraft that took gold down to $1,460 and took silver down about $0.60.

So it'll be interesting to see the next few weeks if those lower prices cause people to buy, taking advantage of the lower prices.

And if the people that took advantage of selling gold at $1,550 a month ago or 6 weeks ago, if they come back in and we see an increase in demand for products and that -- we will know that in the next few weeks.

Yes.

And is that kind of movement, Greg, enough to trigger margin calls with any of your clients at this point?

Like I said, I think in this particular moment at this particular price, we have a very healthy cushion, and we don't have -- I don't think we had any margin calls today with this drop, so I think it -- margin calls as it relates to the loan books.

So as I had said earlier, we come into this new quarter with a very healthy near-record loan book, but we also have the benefit of a very healthy equity position for customers on average.

It doesn't mean you don't have a few customers that are near getting margin.

But I think on average, our position is much better than it was, let's say, last year at this time.

And you might have mentioned it, Greg, and I probably missed it if you did.

But the loan losses are still tracking well?

Yes.

We have yet to experience an actual loan loss where we weren't able to recover all of our principal.

We continue to knock on wood and we believe we have the systems in place to prevent that from happening.

And we have a great track record, particularly through that period a year ago, where we lost -- over a period of 4 weeks, I think we may have lost $40 million in loans without a single loss.

So this is an area we're very careful in and an area that we are looking at this multiple times every day, and we're getting reports first thing in the morning and when we go to bed at night as to where these equity levels are.

Yes.

So it was good to have experienced that and lived through that unscathed.

So just 2 quick questions.

As the customer base expands, is it -- is there any opportunity to penetrate any of the larger ETFs that specialize in gold and silver assets?

Or is the only real opportunity here the retail buyer who wants to own the physical metals?

We -- I mean that question, I'll try to answer it.

It's a little broad, but I'll try to get to where I think the answer you're looking for is.

We're constantly looking at loan opportunities with counterparts that have metal in storage, and that's important for us.

If a client has metal and storage and we can move them into our system and move their metal into our storage as well as give them the opportunity to borrow against their metal, that's a big win for us.

It's much more costly and difficult to get somebody who is a precious metals owner that wants to bury it in their backyard or keep it in their mattress.

That customer is more challenging for us to get introduced to our lending products or our storage products for that matter.

As it relates to the ETF, as you know, I mean, you can margin GLD in your brokerage account.

And if you're a good customer, you can get money at a rate probably cheaper than CFC's able to loan against physical metal and storage.

So that's not really a place that -- a pond that we fish in just because we have competition there that have -- that are banks that have much lower cost of funds than we do.

As it relates to, as I spoke, our physical retail customers, we -- that's a pond that we have very little competition in, so we feel like our cost of client acquisition or our client cost of loan acquisition is very low.

As it relates to GLD, in particular -- and they've had a big inflow, as you can probably track over the last 4 to 5 months.

In fact, they've had a few weeks where they've had record demand and they've had to actually go out and buy the metal that backs the ETF.

That metal is not an area that we can compete in as it relates to affecting our gold ounces sold.

The ETF GLD has their metal stored in London with HSBC.

And they, for the most part, when they get an influx of cash buying the ETF, they're going to go out to either HSBC or they're going to go out to Asahi or Valcambi, and they're going to buy just 400-ounce gold bars that they store in London to back the ETF.

And that's just not, for us, an area that we can compete against.

We're just not set up to have the lowest price in that material.

Plus the counterparties to GLD have to be big enough and provide enough product and always have it available so that if it's needed, they can -- GLD can get it very quickly.

So we look at GLD 2 ways.

One, when GLD's rocking, we usually see some trickle down, and they're attracting new customers or new buyers.

And some of those buyers want to own and hold the metal.

And then on the other hand, we look at them a little bit as a competitor that is convincing people they don't really need the protection of holding physical metal.

They convince their customers that they're just as secure as a storage facility and that every share of GLD out there has an ounce of gold behind it or a 0.1 ounce of gold behind it.

And there's -- that's a different product than what we offer.

Okay.

So it does sound like, as a competing product, it's just you need to really target the customer who, for whatever reason, wants the physical gold versus the more traditional client of the wealth manager out there who wants some sort of precious metals exposure and is happy getting it through an ETF.

Yes.

I mean, yes, exactly.

At the end of the day, we would always vote for gold being double and GLD owning twice as many ounces because that's a -- even though there may be some short-term pain for us, which is what we experienced in our last 2 quarters, where you had mostly institutional buying of the ETF that caused the price of gold to go up, it really was not driven at all by retail buying.

In fact, as you can see from our numbers, the retail buying and the 1-ounce and 0.5-ounce gold coin numbers have actually diminished.

And that's a reflection of a combination of institutional buyers buying big bars or buying the ETF and small retailers -- small wholesale buyers still believing that the stock market is going to go up and there's no need to move to a safe haven.

And so that was probably the biggest anomaly in our performance the last 2 quarters, is that everybody I talk to that's a shareholder says, "Well, this should have been a perfect storm for you.

You had ounces up.

You had the price of gold going up.

You had the price of silver going up.

You had a little bit of China tariff thing going on.

And now we just don't understand your business at all.

Why did you -- why are your results the way they are?"

And if you really dig down and you get granular on it, which is what I've just tried to explain, you just had a situation where the price didn't go up because of panic or fear.

It went up because some -- a number of institutions felt it was time to take chips off the table probably because of the threat of negative interest rates and the fact that they were moving to safety.

And in this case, it was just we're hoping there'll be some herd mentality, that these institutions were first on the scene with this idea and that circumstances down the road will prove them right, which will then drive more retail buying.

That's what we need.

But that -- this situation that just -- we spent the last 5 minutes on really kind of addresses why we're -- our numbers are what they are when you might otherwise think we should have had a great quarter.

Well, it does sound like the differentiator, A-Mark, is you do have these relationships with the mints and you're able to produce unique product.

And it would just seem that with the strong foundation you've built at A-Mark and sort of these valuable relationships with the mints and then everything you got going on at CFC from the financing, transportation storage, sort of as a global question, has the Board or have you given any thought to whether this will be an attractive asset for one of these larger banks or a competitor just maybe had the resources to access those types of customers?

And is there any discussion or any consideration given to sort of that end game?

I mean that's a really good question, Rick, but it's a little broad.

And let's say that, first, you have to view the banking business or the banking industry as like our business, very cyclical.

And banks tend to, a, either be commodity banks that know our business; or they're noncommodity banks that don't want anything to do with our business.

And so that's kind of the differentiator.

And historically, you had European commodity banks like BNP, Natixis, ABN, Rabobank.

These are banks that are in the commodities business, and they want to be in the commodities business as long as other parts of that bank's business support being commodity-facing.

What we find is that those specific banks tend to move in and out of our segment depending on, obviously, whether it's profitable or what their cost of capital is or how they're being assessed cross-charges for capital.

But you'll see, BNP, for example, was once one of the largest commodity lenders in America, had a big presence in oil and gas.

And in the last 18 to 24 months, they've exited the commodities market completely in the U.S. And I mean they -- you can see from our filings, they were once in our bank group, and they're no longer in our bank group.

So I think that -- and as it relates to bigger banks, you would need a situation where a bigger bank wanted to enter the precious metals business and they were looking for a turnkey solution that they would find with A-Mark.

Selfishly, as a big shareholder of the company, I would want to hope that happens when we have 2 or 3 years of great results and we're in a bull market for precious metals and the stock market is back to 2009 levels, and we have crisis everywhere, and you have interest rate problems, and you have default problems.

That is what's going to make A-Mark worth the most money, and that's probably the most likely time where either a commodity bank or a noncommodity bank is going to want to get into our segment, and they're just going to say, "Here's our stock.

Come be a part of this." And then obviously, the Board will look at that and -- as any public Board will, and they'll assess it and decide whether that's viable or not.

I will say that just on a different path to that, there's no doubt that banks today are going to be chasing yield, particularly as rates drop.

And I read a story the other day that there's many trillions of dollars of bonds and debt out there today that trade at negative interest rates.

That environment sets up very well for CFC.

And one of the things we're constantly doing with CFC as it relates to liquidity is looking for exploring and trying to find opportunities that can bring CFC a lower cost of capital and lower borrowing costs.

Because for us -- I mean, you guys, you've been on A-Mark for quite some time, Rick.

But if you just go back a few quarters ago or 6 quarters, we were very enthusiastic about this ABS.

And the ABS came along at a point where us and many others thought interest rates were going to keep rising.

And we locked in $100 million for 5% -- at around 5%, 5.5% cost of funds.

And we were applauded at that time that most everybody I talk to, shareholders, Board members, we all felt kind of like we thought rates were still going to go up and that we locked in what we felt was going to be a very favorable rate.

In hindsight, would we have done that?

It's hard to say.

We feel that we have -- CFC, in particular, is much stronger than it's ever been.

And that the fact that we got an ABS done and we did our first one and that we now have access to that type of capital through that structure, we think, long term is going to be very valuable for us.

But certainly, if we have a $200 million loan book and our average cost of funds is 4% or 5% and we can figure out a way to either team up with a bank or we can look for a strategic partnership or relationships with banks that are chasing any yield at all, that is going to go straight to the bottom line of A-Mark and CFC.

So I think we're -- you bring up a good point.

I think we're very aggressive right now, and we are looking at and we've gone down a number of paths to try to figure out how we can make CFC attractive as rates are down and as people are looking for any yield at all, that we prove we have no loan losses, we prove we can handle a margin call situation, we make ourselves attractive as a fully secured option that we know how to manage.

And that should be attractive to some cheap capital or cheap liquidity if this current sentiment of lower interest rates continues.

Right.

And with the election cycle ahead of us here, one would expect volatility over the next 12 months or so.

And presumably, that can lead to some of the types of years -- at least starting to build that track record of those strong years.

But glad to hear you think that that's still an opportunity to build a few years of really strong results and that, ultimately, that's a good time to consider a sale.

I mean, in addition, I mean, there's enough stories out there you can read.

It's not really my opinion.

It's just probably what I've read.

I mean the current administration seems to have a very good handle on the stock market going up and making interest rates do whatever they want.

And that is going to play out in the next 13 months what happens after the election.

I mean that's -- plus everything else that happens between now and then.

But there's no doubt in my mind that we've always said A-Mark is countercyclical to where most of the money is.

And right now, most people that I read -- that write believe that the stock market isn't going to do anything negative as long as Trump has the levers.

So -- but there's a lot out there that could change that.

Agreed.

Well, best of luck.

And with 40% skin in the game, yourself being among the largest shareholders and the Board, it's nice to know our interests are well-aligned.

So thanks for the hard work.

I appreciate it.

I'm going to try my best not to sell us cheap.

And we'll go next to [Rob O'Brien].

Greg, this is the first time calling in.

And that clarification that I just heard with Rick was really helpful for me.

And so what I hear you saying is given all the turmoil and given the predictions about interest rates, stock prices, election results, wars and et cetera, you didn't really cater to the old school individual that just primarily want to hold coins.

Because everyone can participate in gold fluctuations or gold prices and other means.

But your sweet spot is just the individuals that want to hold coins.

Is that how I look at this?

Yes.

I mean I think that if you really break it down and you really -- if you came to A-Mark and you are an institutional investor and you said, "I want to know what it's going to cost me to own, buy and store $100 million worth of gold and I want to compare that to the load and the carry on GLD," the difference isn't all that much.

And it's -- the real question for a person that's going to own $100 million worth of gold is do they trust that GLD has what they're supposed to have behind it and that there is no counterparty risk?

Or do they trust that their metal is safer in a secured facility, where they can go touch it and feel it and make sure it's there and take delivery of it at any time?

As well as A-Mark has the ability to store metal for customers in, I think, 5 different countries.

So you can also kind of spread your country risk with physical metal, which you can't do in other products, where you could own metal in London, you can own a metal in Canada, you can own metal in Zurich, in Los Angeles, in New York and Singapore.

So our products do have some benefits to what we compete against.

But you're right.

It's a specific customer that's weighing all the risks and costs, and they're kind of biased towards one way or the other.

And that's why I said earlier, with Rick's question, we want more ounces in -- out there that are owned by institutions and individuals because, ultimately, A-Mark is going to get a piece of that pie somehow.

And a bigger pie for us is much better than a smaller pie.

So if you told me I'm going to wake up 6 months from now and GLD is going to be the most popular thing in the world, and they're getting triple the inflow and they're now controlling triple the ounces, I'd probably take that and just say, "Thank you very much." Because I know we're going to get some trickle-down from that because you're going to get some people -- go ahead.

Yes.

And you did mention that, the trickle-down effect.

I see that.

Now when you think about the market that you're trying to reach, do you think, just for lack of better description, with all the -- I'll make an analogy or comparison to digital versus the old mall, the physical nature of malls and shopping has gone away.

Everybody is more reliant on and have a lot of faith in not having to see something -- or have something in a physical presence.

Do you sense that maybe perhaps your typical buyer of 15, 20 years ago has gone away?

Or can you talk -- how do you look at that niche that you cater to?

I think that we spend a lot of time on this.

This is our analysis we kind of are always asking ourselves, are we in a cycle?

Or are we in a situation where our customers are just not interested anymore?

Or they've moved on somewhere else?

Or they -- now just their children own the metal and the children aren't adding to it?

I can say that what we see is that 40 years ago, you had much money -- many, many fewer buyers who made much larger purchases, and most of those purchases were made in anonymity through a local coin shop.

And you did have a demographic of somebody who just wanted to hold the metal and they want to keep it.

I don't believe today that, that group has as big of an impact on our business as it may have 20, 30 years ago.

Today, I think you have a lot of younger buyers -- in fact, you have millions of buyers that are buying smaller amounts of silver and smaller amounts of gold, but they're buying them on a more regular basis.

And they're buying them online or they're buying them on their phone, and they're convinced that they want to hold it, but they're not fearful of counterparty risk.

They're willing to buy the metal on their phone and hope it shows up the next day.

And the beauty for us is that we have strong relationships with the best Internet retailers right now.

And through our logistics and through our mint and through some of our other products, the customer is getting an unbelievable deal compared to what they could have gotten 40 or 50 years ago.

I mean when you used to go to a coin shop 40 years ago, you might have paid 18%, 20% for an ounce of gold.

And today, you can go online and you can buy it and you're in and out.

If you buy it one day and sell it the next, it might be 5%, 4%.

And you could buy it and you can pay for it with any number of credit cards.

You can pay for it with Bitcoin.

You can pay for it and you can actually buy it on your phone right now.

And my guess is we have customers that if you bought on your phone at 2:00 Pacific, you could actually get the product tomorrow or the next day at the latest.

So the market has become very efficient.

And that has hurt some of A-Mark's historical higher-margin customers.

And we've had to adapt to our business with newer, digital, younger clients and customers.

And as you go through these transitions, you got to either be ahead of the curve or you got to be catching up very quickly.

And I mean, I think that's one of the beauties of A-Mark, is you've had a huge transition just over the last 4 or 5 years since the last crisis and we've adapted very well.

We've invested in some things that maybe didn't return what we thought they would.

We've bought some slow growth assets that we believe we need as an option for volatility in the future that maybe haven't rewarded us yet as much as we'd like, but we are very much of the long view.

And I think that we've actually managed this kind of a change in the environment fairly well.

So we're very confident in how we're positioned going forward.

Okay.

Okay.

Let me ask -- can I ask one more question here?

Something that you spoke to earlier about it and talked about we did -- while the volume was up, we didn't see pricing strength, and you made mention of the inventory for cheap dated coins.

Does that imply that you have visibility of the inventory that you need to liquidate?

And do you see that -- can you project out the inventory going forward and the costing of those, the pricing of those coins?

Well, yes.

I mean we are a trading company.

I mean that's what we started as.

So like in any commodity or equity or anything you trade, our traders are constantly looking at what's our spread, our bid-ask spread, what's the volume on the bid, and what's the volume on the ask.

Are we a market maker and a controlling market maker?

Or are we a follower?

And these are all things that we look at.

And then lastly, I mean, we're hedged on everything.

So we don't get any benefit from an ownership issue of assets if gold goes up.

And as I explained, in this case, we had gold go up, but the premiums we make in our bid-ask above melt shrank.

That's what caused the anomaly in our P&L and our gross profit.

Our sole job is to hedge every ounce, be hedged 100% and control the market and expand the premiums.

And then at the same time, expand the volume and collect from our customers on ancillary services that we provide, whether it be financing, logistics, storage, custom products, whatever it might be.

Those things all go into our gross profit bucket.

And if you followed us the last 12 to 18 months, we've had many quarters where one aspect of our business has done very well but the others have kind of languished or had been slow on the uptick.

We're very much always looking to the future, where we -- it's kind of like a car engine where you get all 12 cylinders firing at the same time.

That's what we're positioning ourselves for.

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.

I'm back on again.

I kind of hogged it, but thank you all for joining our call today.

As always, we appreciate your interest and continued support.

We look forward to keeping you apprised of our company's progress, and we're very much looking forward to the next 12 months.

We think there'll be some fireworks in the macro political and economic arena, and we're hoping we'll be positioned to take advantage of that.

So goodbye for now, and thank you for joining.

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 and Exchange Act of 1934.

Future events, risks and uncertainties, individually or in 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 the changes in the market environment as anticipated; general risks of doing business in the commodity markets; and other business, economic, financial and governmental risks are described in the company's public filings for 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 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.