A-Mark Precious Metals - Earnings Call - Q2 2018

Transcript

Speaker 0

Ladies and gentlemen, good morning and welcome to A Precious Metals Conference Call for the Fiscal Second Quarter Ended December 3137. My name is Adam and I will be your operator this afternoon. A Mark issued its results for the fiscal second quarter and six 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 Gerdrum and CFO, Carrie 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.

Speaker 1

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 six months of the year were yet again impacted by subdued conditions in the precious metals market, which have persisted since the twenty sixteen election. The second quarter was marked by another period of historically low sale 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. and perhaps most importantly, our finance book continues to perform exceptionally well 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 ten 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 continue 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 like our CFO, Carey Dixon to walk us through the financial details for the fiscal second quarter and first six months of twenty eighteen. Then our President, Thor Jardim, 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 twenty eighteen. Carey?

Speaker 2

Thank you, Greg, and good afternoon, everyone. Turning to our financial results for the second quarter and six months ended December 3137. Our revenues for fiscal Q2 twenty eighteen decreased 21% to $1,680,000,000 from $2,130,000,000 in the same year ago quarter. For the six months of the year, our revenues decreased 2% to 3,840,000,000 from $3,930,000,000 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 twenty eighteen decreased 10% to $8,800,000 or 0.53% of revenue from $9,900,000 or 0.46% of revenue in Q2 of last year. For the six month period, our gross profit decreased 10% to $16,200,000 or 0.42% of revenue from $17,900,000 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

in Q2 of last year. For the 62018, SG and A increased 38% to $16,300,000 from $11,800,000 in the same year ago period. The increase for both periods is primarily due to SG and A expenses related to our newly acquired direct sales segment Goldline and other non recurring costs, partially offset by a reduction in incentive based compensation. For the second quarter of twenty eighteen, our interest income increased 10% to $3,300,000 from $3,000,000 in the same year ago quarter. For the six month period ended December 3137, our interest income increased 11% to $6,400,000 from $5,800,000 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 Q2 twenty eighteen increased 37% to $3,400,000 from $2,400,000 in the same year ago quarter. For the six months, interest expense expenses increased 30% to $6,100,000 from $4,700,000 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 twenty eighteen totaled $200,000 or 0.03 per diluted share, as compared to net income of $2,800,000 or $0.39 per diluted share in the same year ago quarter.

For the six month period, our net income decreased 94% to 300,000.0 or $0.04 per diluted share from $4,700,000 or $0.66 per diluted share in the same year ago period. On a reportable segment basis, Goldline, our direct sales segment had a $2,100,000 pretax loss for the fiscal second quarter of twenty eighteen, while A Mark, our Wholesale Trading and Ancillary Services segment had a $2,300,000 pretax profit. Our tax provision for the three and six months ended December 3137 included the impact of the enactment of the Tax Cuts and Jobs Act or tax reform, which was signed into law on December 2237. 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 carry back and carry forward rules that apply to net operating losses, both of which impact A Mark immediately and in future periods. This tax reform limits A Mark's ability to carry back a net operating loss to a prior year.

Additionally, it will result in a partial write down of deferred assets from 35% to a lower rate, either 2028% blended rate that applies for our fiscal year that we're in now or 21%. This increased our tax expense by approximately $300,000 in fiscal Q2 and for the six months ended December 3137. 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 one 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 should 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 one year measurement period. Now turning to the balance sheet. At quarter end, we had $12,000,000 of cash compared to $8,400,000 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 at the end of the quarter, we had $7,500,000 of long term debt related to our acquisition of Goldline.

Our tangible net worth at the end of fiscal Q2 totaled $54,000,000 which compares to $54,100,000 at the end of Q1. And finally, as we announced last week, our Board of Directors declared a regular quarterly cash dividend of $08 per share. The cash dividend will be paid out on February 2738 to all stockholders of record as of February 1338. This completes my financial summary. Now I will turn the call over to Thor, who will provide an update on our key performance metrics.

Speaker 3

Thanks, Carey. Turning to our key operational metrics for the quarter and 6 of fiscal twenty eighteen. Looking at our 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 on forward contracts. This is an important metric because it reflects the volume of business we are doing without regard to changes in commodity pricing, which figure into revenue and can mask underlying business trends. During the second quarter, we sold 376,000 ounces of gold, which was up 13% from the prior quarter, but down 51% from fiscal Q2 of last year.

For the six months of the fiscal year, we sold 708,000 ounces of gold, which was down 46 compared to the same period last year. Additionally, in the three months ended December 3137, A Mark's percent of purchases from the U. S. Mint of Gold Billion products increased 9% from the same year ago quarter. Turning to silver.

During Q2, we sold 12,000,000 ounces of silver, which was down 18% from prior quarter and down 48% from Q2 of last year. The 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's generally increased trading in the commodity market 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 six month period, our trading ticket volume increased 5% to 60,147 tickets compared to the same period last year. The key measure 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 was 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 the number of secured loans at the 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 3137, the dollar value of CFC's loan portfolio totaled $97,000,000 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 in our key operational initiatives. Greg?

Speaker 1

Thanks, Thor. As I mentioned at the 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 products, 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 facility continues to provide us with valuable complementary product and service offerings, including storage. Along that line, we recently received approval from Gold Star Trust Company for IRA storage.

By way of background, Gold Star was established nearly thirty years ago and currently has approximately $2,000,000,000 in assets and more than 37,500 self directed IRA accounts under its custody program. Gold Star reflects one of the many opportunities to rapidly grow our storage revenue. 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 twenty eighteen commemorative coins as well as the twenty twenty Summer Games, adding to the host country coin products. A will be offering Team USA precious metal products that will be manufactured in The U. S. 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 year quarter, we saw sales of precious metals increase in January with release of the new twenty eighteen 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 affect immediate change on the precious metals environment. Additionally, as Carey 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.

Speaker 0

You may push star two if you would like to remove your question from the queue. For any participant using speaker equipment, it may be necessary to pick up your handset before pushing the star key. Our question comes from the line of Sarkis Sherbetchyan from B. Riley.

Please go ahead.

Speaker 4

Yes, good afternoon. This is Austin Drake on for Sarkis. Thanks for taking my questions guys. You mentioned the increase of the precious metal sales in January. But with the equity market volatility we've seen pick up lately, have you noticed that leading to any change in activity in the precious metals trading?

Speaker 1

Yes. 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 eighteen, nineteen months since November 2016.

So this volatility that has presented itself in the last few days has certainly been beneficial to volumes. Physical product ounces continues to struggle, but we believe we 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 environment, but it's a small sample size.

Speaker 4

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

Speaker 2

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

Speaker 3

But again, can easily reference that with the ounces that we quote are our physical sales. So if you're looking to compare gross revenues as reported per 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 Q here in the next couple of days. And that will give you the true those numbers are the true physical volumes.

Speaker 4

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?

Speaker 1

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 six month loans. Some of the loans have automatic adjustments when the prime rate goes up.

They automatically adjust up or down depending on the movement of the prime rate. Other loans we have are fixed for six months. And at the renewal point every six 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 go 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 six months and we've been raising rates in anticipation of interest rates rising.

Speaker 4

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?

Speaker 2

The

Speaker 1

loss for the quarter just resulted was 2,100,000.0 on a pretax basis. And we believe that we are 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 and 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're taking a cautious approach. We have some initiatives that we've already executed over the last thirty to sixty 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 sixty 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. And 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 six 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 reflective 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 two 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.

Speaker 4

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

Speaker 1

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

Speaker 4

Thanks for taking my questions.

Speaker 0

Thank you. Our next question comes from the line of Greg Eisen from Singular Research. Please go ahead.

Speaker 5

Yes, thanks. Going really following on the Goldline questions and really looking at the SG and A of the whole company, I realize you'll show the segment breakout on the queue, but we don't have that yet. Is this SG and 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?

Speaker 1

I think it's a combination. I think that this run rate of overhead and SG and 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 and 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 are 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 ten years of ounce 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 be ounce counts over the next twelve 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 six to eight 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 ten years and the next fifteen years, not for the next three or four 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 four to six 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 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 purchases and what we're paying for that initial purchase. So that's an area that we are being very cautious with and we're testing and we're clearly in the mode of watching the SG and A and making sure that the SG and A matches the ounces and the gross profit we can generate there.

Speaker 2

Sure. But

Speaker 1

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.

Speaker 5

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

Speaker 1

We signed the agreement late. We have created two products in silver, both being struck at the SilverTowne Mint in Indiana. They're beautiful products. You will you can see M.

Bullion's website. There 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 time line that we had for this was really a generic Olympic with the rings, one ounce round and a 10 ounce bar.

We have contracted with J. M. Bullion starting tomorrow in conjunction with the opening ceremonies to do a significant email 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 J. M.

Bullion will have those coins on their site tomorrow. And if anyone wants to see them, you can go look them up. But we have a number of ideas on this. Fortunately, we have two years that the agreement runs through the summer games in two point five years. So we believe this is an opportunity to really have a mainstream product that maybe will motivate a nontraditional bullion buyer to purchase.

Speaker 5

Good, good. Turning you mentioned SilverTowne and striking the silver medals there. This quarter in the income statement, the minority interest allocation served to increase the loss, meaning that you were allocating to minority shareholders profits being earned by the subsidiary that they own a share of, which I guess therefore is SilverTown. Could you talk about the profitability of SilverTown? And what generated that level of profitability this quarter versus say last quarter

Speaker 1

It's actually related to the earn out that we did, which is in our filings when we purchased the 51%. There was an earn out allocation to the additional purchase price or if the mint outperform certain metrics, which it didn't. So what really happened in this quarter was we were able to reverse some potential earn outs that were not earned that we were able to bring back in. So it looked as though it had a profit and it but it was that income came from a reversal of an accrual for an earn out 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 is 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 10,000,000 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 efficient 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 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 two 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.

Speaker 5

Okay. Okay. And my last question is regarding your tax provision. I realize the details would be in the Q 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 a for a tax estimate going forward in future years somewhere

Speaker 2

I think to 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 be muddy for the next six months for the rest of this fiscal year. But that I think if 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 local. So we're going have a much lower effective rate on a go forward going forward on both the cash flow basis and also from an accounting point of view.

Speaker 5

The adjustment

Speaker 1

Yes. And the adjustment this quarter had a lot more to do with timing than it did what we ultimately will have as a rate. This quarter, we had 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 carry backs or forwards and it had to do a lot with unrealized gains and losses, which is what caused the adjustment. There's 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's a probability that that word may have triggered something with us that wasn't intended as it relates to our unrealized gains and losses in our futures and forwards.

So we took the most conservative approach. But it is we believe that it will be at some point remedied. Don't know if it's six days or six years, but it will be 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 or we realize the gain or loss in our futures and forwards.

Speaker 5

I understand what you're saying and it gets pretty complex to explain over the phone, but

Speaker 1

Yes. Or even to understand in my head. Right. And that's why we have Carrie and Thor here because they're much better at it than me.

Speaker 5

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

Speaker 2

I'll say we're quite fortunate compared to you've probably seen other companies that are writing up massive amounts of deferred assets and annual carry forwards and they're getting multi billion dollar hits to their P and L. We feel kind of fortunate that ours is rather minor compared to that.

Speaker 5

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

Speaker 1

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

Speaker 2

to that, that not only to Greg's point, this is a very small amount because it's service fee income. It's all been taxed every single year in The U. S. In our U. S.

Rate. So there's 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.

Speaker 5

Sure, sure. Understood. Okay, thanks a lot. And I'll let someone else go.

Speaker 0

Thank you. Our following question comes from the line of Mitch Alme from Wedbush Securities. Please go ahead. Good afternoon.

Speaker 1

Hello, Mitch.

Speaker 6

I have one question. It's sort of a bigger picture. Since the spin off, you built your facility in Las Vegas. You bought a mint, 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 go 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?

Speaker 1

I think that what I really need what we really need 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 J. Bullion on Friday, Monday and Tuesday.

And we have learned that J. M. 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's plenty of small silver products available. I think we're doing a great job of selling them. But that demand is as you can see from the mint numbers is 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 ten 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 the past and that we believe whatever the acquisition or whatever the asset is that 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 that the ounce counts go up or down or sideways, we just want to try to add a point or two 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's a client base out there of precious metals customers that have metal that can either be sold more metal or can be turned into borrow against their metal at CFC or store their metal in Las Vegas, we will aggressively pursue those assets 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 paying 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.

They 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 26,000,000 ounces in six months, the last six months, which is where we what we sold. The good news for A Mark is that if the market demanded 50,000,000 ounces in the next six 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 they're 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 to 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.

Speaker 6

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

Speaker 2

Yes.

Speaker 6

Thank you.

Speaker 0

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

Speaker 1

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?

Speaker 0

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 are 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 estimate 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 twenty eighteen earnings call. You may now disconnect.