A-Mark Precious Metals - Earnings Call - Q2 2021
February 9, 2021
Transcript
Speaker 0
Good afternoon, and welcome to A Mark's Precious Metals Conference Call for the Fiscal Second Quarter Ended 12/31/2020. My name is Laura, and I will be the operator this afternoon. Before this call, A Mark issued its results for the fiscal second quarter twenty twenty one 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 in the Investor Relations section at the top of the homepage. Joining us for today's call are A Mark CEO, Greg Roberts President, Thor Tjerdrum CFO, Kathleen Simpson Taylor as well as J.
M. Bullion's Co Founder and CEO, Michael Whitmire. Following their remarks, we will open the call for your questions. Then before we conclude the call, I'll provide the necessary cautions regarding the forward looking statements made by management during this call. I would like to remind everyone that this call is being recorded and will be made available for replay via a link available in the Investor Relations section of A Mark's website.
Now I would like to turn this call over to A Mark's CEO, Mr. Greg Roberts. Sir, please proceed.
Speaker 1
Thank you, Laura. Good afternoon and thank you for joining A Mark's conference call. Today is a truly exciting and transformative day for A Mark, and I'm looking forward to sharing a number of updates with you. As you may have seen, after the market closed today, we issued a press release announcing A Mark's agreement to acquire J. M.
Bullion. We also issued a press release with our financial results for the second quarter and first six months of fiscal twenty twenty one, which I'll touch base on before getting into the acquisition. Q2 was another solid quarter for A Mark and reflects the profitability we continue to see during these market conditions. Following the unprecedented volatility in the precious metals markets during Q1, which produced record profitability for A Mart, the second quarter was characterized by slightly lower but still strong product demand, volumes and premium spreads. Taken together, these market dynamics allowed us to realize another strong financial performance this quarter, including generating $8,900,000 in net income attributable to the company, which contributed to the most profitable half of any fiscal year in A Mark's history.
Our financial results continue to demonstrate the benefits of our unique business model, which is designed to generate steady and diverse revenue streams in normal market conditions and outsized profitability during more volatile market periods, which is which we have been experiencing in the last few quarters. We've intentionally built A Mark with three complementary business segments, which support one another and drive incremental and organic business across the platform. A good example of this is our minting operations, which is anchored by our investment in SilverTowne Mint. SilverTowne provides A Mark, Goldline and J. M.
Bullion with improved supply during supply constrained periods, which we've seen over the last few quarters. This tightly integrated and synergistic model also provides us with multiple growth avenues, including cross selling opportunities for continued expansion. The resulting effect is our continued ability to capture increasing value across the precious metals market. As I mentioned earlier, in addition to strong financial results for the second quarter, we also issued a press release today announcing the definitive agreement we have signed with J. M.
Bullion, a leading e commerce retailer of precious metals, to acquire the remaining 79.5% of the issued and outstanding shares of J. M. Bullion not currently owned by A Mark. Before discussing JMV and the strategic rationale, I think it's important to provide some context. A key driver of our exceptional financial results over the last several quarters are the strategic investments we have made to expand A Mark's direct sales segment.
This area of our business has grown considerably over the last several quarters and has contributed increasing profitability. A Mark has been a leader in precious metals since 1965. Over that time, we've established a robust wholesale business with a marquee institutional customer list. We've been able to grow our position in the market, thanks to the high caliber team we've assembled that has more than one hundred years of industry experience in various commodity cycles and market conditions. Several years ago, we recognized the evolving customer buying patterns and how the Internet and e commerce was dramatically changing the retail precious metals market.
In response, we expanded A Mark's presence and position in the retail market initially through our minority investment in J. M. Bullion back in 2014 and more recently through minority investments in two other precious metals e commerce businesses, each of which serve differentiated customer bases. Over the past six years, we have been able to make further investments in J. M.
Bullion and have enjoyed a highly synergistic relationship together. We are now very excited to add J. M. Bullion and its management team to our business as the combination of A Mark and J. M.
Bullion will create the industry's preeminent, fully integrated precious metals platform. Since its founding in 2011, JM Bullion has experienced tremendous success. JM's Co Founder and CEO, Michael Wittmeyer, who is on the call with us today, leveraged his team's expertise in e commerce and search engine optimization to establish JM Bullion as a lead player in the precious metals industry. Based on this success, A Mark became increasingly comfortable with our minority investment as Michael and his team proved our thesis that e commerce was transforming how retail investors bought and sold precious metals. Over the past several quarters, we've watched J.
M. Bullion execute exceptionally well to take advantage of favorable market conditions as well as manage unprecedented volume, packages and ounces sold. And we reached the conclusion that our respective businesses would be even stronger as a combined platform. And as the saying goes, we truly believe one plus one is equal to three. With that, I will turn it over to Michael to introduce himself, his company and the value he sees in joining A Mark.
Michael, welcome to the team. Take it away.
Speaker 2
Thank you, Greg, and good afternoon, everyone. Thanks for having me join the call. Today is a very exciting day in JM's history and evolution. It wasn't that long ago that JM was just two cofounders operating out of a basement in Lancaster, Pennsylvania, which really puts into perspective how far the company has been able to come over the last nine years. Since our founding, we have established our company as an industry price leader, while exceeding customer expectations with fast, secure shipping and award winning customer service.
We've been able to do that through the dedicated efforts of our team along with the support of high quality partners like Greg and A Mark who have helped JM pursue our mission to create one of the largest and fastest growing online retailers of precious metals in the world. For those of you who aren't familiar with JM, our company enables individual investors to easily and efficiently purchase physical precious metals over the Internet. We offer a broad selection of gold, silver, platinum, palladium and copper products through our various company owned websites and marketplaces. Today, we operate five uniquely branded websites targeting specific niches within the precious metals market. These include jmboyant.com, providentmetals.com, silver.com, goldprice.org, silverprice.org along with our JM eBay marketplace.
We've experienced tremendous demand lately on our sites and for our products, particularly silver products as retail investors look to gain exposure to silver. Direct to consumer suppliers like JM has had a difficult time keeping up with the level of demand, which is at multiples from what we typically see. Now by partnering even more closely with Greg and the A Mark team, JM will be able to leverage A Mark's unmatched capabilities in product sourcing and minting to be even better positioned to serve our growing customer base's demand for precious metals products. Thank you again everyone and I will now turn it back over to Greg.
Speaker 1
Thanks, Michael. With this acquisition, JM William becomes the anchor in our direct to retail strategy, significantly bolstering A Mark's capabilities and dramatically broadening
A Mark's dramatically Bullion provides channel diversification and significantly increases A Mark's direct sales segment, which will represent approximately 50% of the combined company's pretax net income on a pro form a basis. J. Bullion will provide A Mark with the ability to tailor its merchandising and pricing strategies to multiple customer demographics across the combined businesses, six unique consumer facing brands. The five currently owned by J. Bullion plus Goldline.
With the acquisition of J. M. Bullion, A Mark has significantly bolstered its direct to consumer capabilities and broadened its consumer facing brand portfolio. J. M.
Bullion will add a centrally located distribution hub in Dallas, Texas, which will further improve A Mark's ability to service its customers across the country as well as expanding our overall capacity of packages shipped. J. M. Bullion's proven and proprietary online marketing strategies enable it to acquire customers at attractive rates and realize average order values at over 50 times its customer acquisition cost. On top of this, JamBullion's rapidly growing total number of users, which grew at a 31% annual rate in 2020, adds 1,300,000 new users to A Mark's direct sales segment.
This newly acquired customer base had an average order value of $20.20 dollars in 2020, which will help drive additional profitability for A Mark. And finally, the A Mark and J. M. Bullion leadership teams have significant precious metals market expertise and deep online and e commerce experience. Given our familiarity with J.
M. Bullion, including our close working relationship with its leaders and integrated work streams since 2014, we are confident that as a truly unified organization, we will be able to more effectively capitalize on the burgeoning demand for precious metals throughout online and e commerce channels. From a financial perspective, J. M. Bullion adds significant scale to A Mark's already robust profile.
For J. M. Bullion's fiscal year ended 12/31/2020, it generated net sales nearly $1,500,000,000 and gross profit of nearly 79,000,000 with pretax income in excess of $62,000,000 These strong financial results are being driven by improving customer metrics and KPIs, including a 30% year over year increase in total user base of 1,300,000. Of this amount, more than 300,000 users are classified as active, meaning they completed at least one transaction with JM Bullion during calendar twenty twenty. In terms of consideration and transaction structure, A Mark will pay $138,300,000 for the 79.5% of J.
M. Bullion it does not currently own, implying a total valuation of JM Bullion of $174,000,000 Of the $138,000,000 purchase price, 103,000,000 will be in cash and $34,500,000 will be paid in A Mark common stock. A Mark intends to finance the cash consideration with available cash on hand along with net proceeds from any equity or debt financing, which we may determine to consummate prior to closing. The acquisition is expected to close in the first quarter of calendar twenty twenty one, subject to customary closing conditions and regulatory approval. Following the close, Michael Wittmeyer and J.
M. Bullion's Chairman, Kendall Seville, will join A Mark's Board of Directors. Michael will remain CEO of J. M. Bullion and will also assume the title of Executive VP of A Mark's Direct Sales segment.
I will now turn the call over to Kathleen Simpson Taylor, our CFO, to discuss our financial results for the second quarter and first six months of fiscal twenty twenty one in more detail. Kathleen?
Speaker 3
Thank you, Greg, and good afternoon, everyone. Turning to our financial results. Our revenues for fiscal Q2 twenty twenty one increased 44% to $1,520,000,000 from $1,060,000,000 in Q2 of last year. The increase in revenues was primarily due to an increase in the total amount of gold and silver ounces sold and higher selling prices of gold and silver. For the six month period, our revenues increased 33% to $3,380,000,000 from $2,540,000,000 in the same period last year.
The increase in revenue was primarily attributable to an increase in the total amount of gold and silver ounces sold and higher average selling prices of gold and silver. Gross profit for fiscal Q2 twenty twenty one increased 131% to $18,800,000 or 1.24% of revenue from $8,100,000 or 0.77% of revenue in Q2 of last year. For the six month period, gross profit increased two thirty three percent to $54,900,000 or 1.6% of revenue from $16,500,000 or 0.6% of revenue in the same year ago period. The increase in gross profit for both the quarter and the six month period was due to higher gross profits earned by our wholesale sales and ancillary services and direct sales segments. SG and A expenses for fiscal Q2 twenty twenty one increased 15% to $9,000,000 from $7,900,000 in Q2 of last year.
The increase was primarily due to increases in insurance costs of $500,000 financial and tax consulting costs associated with the acquisition of $400,000 compensation expense including performance based accruals of $300,000 and $100,000 of advertising expense. The increase in SG and A was partially offset by decreases in operating expenses of $100,000 associated with our direct sales segment and depreciation and amortization expense reduction of $100,000 For the six months of the fiscal year, SG and A expenses increased 18% to $19,000,000 from $16,100,000 in the same year ago period. The increase in SG and A expenses was primarily due to increases in compensation expense including performance based accruals of $2,200,000 insurance costs of $400,000 financial and tax consulting costs associated with the acquisition of $400,000 computer software costs of $200,000 and advertising costs of $200,000 The increase in SG and A was partially offset by decreases in operating expenses of $300,000 associated with our direct sales segment and $200,000 for depreciation and amortization expense. Interest income for fiscal Q2 twenty twenty one increased 14% quarter over quarter to $4,500,000 from $4,000,000 in Q1 of fiscal twenty twenty one, but decreased from 6,200,000.0 in q two of fiscal twenty twenty.
This is as a result of fewer secured loans outstanding due to the drop in silver prices in q three of fiscal twenty twenty. For the six month period, interest income decreased 29% to $8,500,000 from $12,000,000 in the same year ago period. The decrease for both the quarter and the six month period was primarily due to lower interest income earned by our Secured Lending segment, partially offset by higher other finance product income. Interest expense for fiscal Q2 twenty twenty one decreased 1% to $5,000,000 from $5,100,000 in Q2 of last year. The decrease was primarily due to a reduction in loan servicing fees, partially offset by an increase in interest expense related to product financing arrangements.
For the six month period, interest expense decreased 9% to $9,300,000 from $10,200,000 in the same year ago period. The decrease was primarily due to reductions in interest expense related to our trading credit facility and loan servicing fees, partially offset by increases in interest expense related to product financing arrangements and liability on borrowed metals. For the second quarter of fiscal twenty twenty one, net income attributable to the company totaled $8,900,000 or $1.16 per diluted share. This was a significant improvement from net income attributable to the company of $1,200,000 or $0.17 per diluted share in Q2 of last year. For the six month period, net income attributable to the company totaled $32,000,000 or $4.21 per diluted share, which compares favorably to $1,400,000 or $0.19 per diluted share in the same period last year.
Turning to our balance sheet. At quarter end, we had $14,900,000 of cash compared with $52,300,000 of cash at the end of fiscal year twenty twenty. Our tangible net worth at the end of the quarter was $104,900,000 up from $91,000,000 at the end of fiscal year twenty twenty. That completes my financial summary. Now I will turn the call over to Thor, who will provide an update on our key performance metrics.
Thor?
Speaker 4
Thank you, Kathleen. Looking at our key operational metrics for the second quarter and first six months of fiscal twenty twenty one, we sold 479,000 ounces of gold in Q2, which was an increase of 12% from Q2 of last year, but down 34% from the prior quarter. For the six month period, we sold 1,200,000 ounces of gold, which was up 20% from the same period last year. We sold 21,200,000 ounces of silver in Q2, which was up 51% from Q2 of last year and down 12% from last quarter. For the six month period, we sold 45,500,000 ounces of silver, which was up 30% for the same period last year.
Wholesale ticket volume, our key metric, decreased 16% to 29,797 tickets from the prior quarter and decreased 3% from Q2 of last year. For the six month period, wholesale ticket volume decreased 3% to 65,138 tickets from the same period a year ago period. While our ticket volume decreased, our average order size per ticket increased versus the comparable prior year periods driving an increase in overall revenue. The key metric we evaluate is inventory turnover, which is a measure of how quickly inventory has moved during the period. For the second quarter, our inventory turnover ratio was 3.6, which was down 28% from five point zero in the prior quarter and up 9% from 3.3 in Q2 of last year.
For the six month period, our inventory turnover ratio was 7.9%, which was down 13% from 9.1% in the same year ago period. The decrease in our inventory turnover ratio was primarily due to higher product financing arrangements. Finally, the number of secured loans at the end of the quarter totaled thirteen twenty four, an increase of 18% from the prior quarter and a decrease of 65% from Q2 of last year. The dollar value of our loan portfolio at the end of the quarter totaled $95,800,000 which is up 14% from the prior quarter and down 37% from Q2 of last year. It is important to keep in mind that typically the number of loans increases during periods of rising precious metals prices and decreases during periods of declining precious metals prices.
In the past three quarters, silver prices have rebounded, we have experienced growth in our CFC loan portfolio. That concludes my prepared remarks. I will now turn it back over to Greg.
Speaker 1
Thank you, Thor. Our business continues to benefit from the sustained rally in precious metals. The acquisition of J. M. Bullion is truly transformative and will allow us to take even greater advantage the burgeoning demand for precious metals through A Mark's expanded online and e commerce channels.
This confidence is supported by A Mark's favorable competitive position, industry leading platform and proven business model. We believe this will translate to continued growth and profitability in the years ahead. Before we open the call to questions, I would like to thank our valued shareholders for your continued support and confidence in myself and A Mark. Without your continued support, this transaction would not be possible. I would also like to extend a warm welcome to the entire 100 person plus J.
M. Bullion team along with their valued customers, partners and suppliers. We look forward to having you join the growing A Mark family. Operator, please provide the appropriate instructions for the Q and A.
Speaker 0
Thank you. At this time, we will be conducting a question and answer session. You may proceed with your question.
Speaker 5
Thank you. Good evening and congratulations on this really interesting acquisition. Looks like an exciting opportunity that you're bringing together.
Speaker 1
Thank you, Craig.
Speaker 5
My question I wanted to ask, is about synergies, for JM, back with the core A Mark platform. Can you maybe share a little bit more detail on how JM and Goldline fit together? And maybe are there some external suppliers that can be moved over to A Mark? And then how does this fit or how does this impact core operations at A Mark?
Speaker 1
Well, I mean, think the synergies we have seen particularly over the last twelve months are very enlightening to us. I believe that what we have witnessed with some of the weeks and months that we have had where J. M. Bullion has had unprecedented demand and increase in transactions as well as Goldline's improved performance and the amount of transactions that they're conducting is that there's really no substitute for having an integrated inventory and logistics system with JM or with Goldline. And I think what we've seen now two or three times in calendar year 2020 and what we've really seen with the events that took place the February where we had an unprecedented amount of volume and customers coming into the marketplace, is that having the material A Mark, having the material in one location and having it available to J.
M. Bullion or Goldline to sell immediately is just it's a real game changer and really helps the retail facing units provide product and get the product in the customers' hands faster than anybody in the marketplace. And I truly believe that this combination, it will allow us to just really take advantage of these opportunities when we have the ability to move inventory from A Mark to a JM customer in twenty four or forty eight hours, same with a Goldline customer. And that ability to have product available really allows us to add new customers and to sell a customer as much as we possibly can or as much as the customer wants. And whether it's the SilverTowne Mint or whether it's the Sunshine Mint or any of the other suppliers that A Mark has, A Mark's size and ability to inventory product, finance product very cheaply and then make it available on a real time basis to retail customers through JM or through Goldline is really to us a game changer and we feel it's just a natural progression.
Really seeing the machine work and seeing 100,000 or 120,000 packages go out in a month to retail customers through our logistics sites and delivering those quickly is really what propelled us and caused us to really take a look at this transaction and be very enthusiastic about it.
Speaker 5
Excellent. Thank you. My question is really about macro. So, you know, I really love the metrics you shared. Active active users up 70% year over year.
Total users up 30%. More than more than a million users added to the platform. You know, there's a lot of things being tossed around these days, stagflation, inflation, stimulus spending, all scary things for investors and everybody's looking for for inflation protection. Can you talk a little bit about how this is impacting the psychology of customers out there? And are you seeing indicators or what would you say are the best indicators that we're seeing a more committed, more active pool of buyers?
And, you know, just as an aside, how does bitcoin fit into the picture? It's something that also comes into the general conversation when we talk to investors about, you know, the increased interest and increased commitment of buyers to have a portion of their portfolio in precious metals?
Speaker 1
Thank you Craig for a very broad question. I'll leave it to you to keep track of if I answer each one of those in order or not. But let's start with macro events in the last twelve months. I think that you can pinpoint very easily the events in March of twenty twenty and the COVID and the pandemic. And we can definitely point towards that from a logistics standpoint and from just the overall world kind of shutting down and slowing down and a little bit of panic buying through March, April, May and June.
And that customer, I think, was probably more closely tied to our existing customers and our customers that are familiar with the marketplace. I view that customer base completely different than what we saw in August and September and then what we are seeing today in January and February. I think there is quite a bit of difference in the mentality of the buyer. And I think it's very positive. I think that for us, when we got to June, July and we did see a little bit of a slowdown in new customer acquisition and we did see a little bit of a slowdown in ounces sold, not for a long period, but for thirty days or you kind of believe there that maybe this was just COVID related.
But what we're seeing now and what we've seen since August and September, we've just seen much more macro interest in the stimulus, in political issues, in the devaluation of the dollar. We're seeing all the buzzwords that are out there right now and we're seeing that translate into the type of buyers that we're seeing. And I will say that although I don't believe there's a correlation necessarily to a bitcoin buyer versus a physical precious metals buyer, I will say that what's motivating people to buy bitcoin is probably motivating our precious metals customers and the new customers that are entering the marketplace, which is a macro fear of economic deterioration of a devalued inflation and what is going to happen to the purchase price and the ability to use existing dollars and what will that cost what will products cost in the future. These are all things we're hearing. I think that Michael and I are extremely confident and optimistic that the quality of the customer and we see this at Goldline.
We always kind of look at the different type of demographic in buyers. The quality of the buyers that we have added to the platform in the last just five to six months and the average order size, the preponderance to buy a little bit more gold than silver, We just see a bigger wallet and a much bigger order size as well as time buyers coming in and buying significantly more in some cases than we've seen before. I think it's very telling. And historically, the Goldline buyer we've seen is a bit more conservative, a little bit older, a little bit more interested in macroeconomics and issues that are going on. And what we saw early on in J.
M. Bullion's evolution was a buyer that bought a little bit smaller average order size, generally bought silver and in a lot of cases bought the dips and bought when we saw price drops as somewhat of a bargain shopper. In the last six months, that has changed completely and Goldline and JM buyers and new customers are much more aligned, much more similar. Particularly on the JM side, we're seeing much higher average order size and much higher preponderance to gold and a higher initial order. I've seen some customers at JM that start off with an initial order of $5,000 to $10,000 and they end up over a very short period of time buying $6.07 figures of precious metals.
And that's very, very positive and certainly one of the reasons why we are very excited about this customer base that we are acquiring. The other thing which I just want to make a very strong point of is that in spite of a lot of people who believe that bitcoin has is somehow going to be the next currency or the next hard asset. We've seen in conjunction and very closely tied in parallel as Bitcoin has gone from $10,000 to $40,000 it's very interesting to us that we've also experienced a record increase in new customers with a very high order size, which I just talked about, which would indicate to me that although their circles might cross a little bit as it relates to what they're looking at, They actually can and do perform in parallel and in conjunction through the exact same economic uncertainties. And then I don't want to get too much into what's happening we're seeing in the first quarter. But certainly the events that JM Bullion and Goldline and other precious metal dealers experienced January 3031 and February 1 as it relates to the Reddit buyers or the Wall Street bet buyers.
I mean, we saw over that weekend an unprecedented amount of new customers added to the platform and just new customers that we'd never seen before, that were just a different type of buyer and a different demographic. And to be quite honest, it put tremendous pressure on the physical metal product side. But I'm very happy to say that Jay and Bullion and A Mark and Goldline, the three of us together delivered a tremendous amount of packages and product and did it seamlessly to a whole new group of customers, which gave them a very good time experience in precious metals.
Speaker 5
Excellent. Greg, I also wanted to ask about the expansion capacity expansion over at SilverTowne. How is the new pizza oven? How the debottlenecking that you've been doing there working? Are we operating close to maximum capacity now?
Speaker 1
Today, operating at about 550,000 ounces a week in production. We did have just due to logistics and the pandemic, we had a little delay in receiving the new furnace or pizza oven. I'm happy to say that as we speak, it is being put together and unpacked at SilverTowne Mint. And I think that's we're looking forward to bringing that capacity online within the next couple of weeks. I think that we will be comfortable within the next seven days.
We will be able to start forward selling that production probably for delivery around March 1. So we will have that capacity online for the A Mark traders to be to start selling and for JM to start selling within the next couple of weeks. But so far, we're very the machine arrived in great shape. Reconstruction putting it together is going well and we're very happy. I'd also like to add that Michael had the foresight three or four months ago to buy his own pizza oven and that will be delivered in a few weeks.
And through this process with Michael and JM, we're happy to report we have room and we will be adding the furnace and pizza oven to the SilverTowne facility in Indiana probably sometime in April or May.
Speaker 5
Thank you. And then last question if I may. In the results for the quarter, your numbers are pretty good for the loan book, right? Your secured loan book you know, 18% growth sequentially. You're doing a good job rebuilding that book after the volatility kind of shook it out earlier this year.
Is there maybe an opportunity to market secured loans to JM customers? Is this something that might be able to accelerate growth and expand the opportunity over the next number of quarters?
Speaker 1
The simple answer is a strong yes. I would say that all of the products that A Mark has will only make the customer experience better for the JM customers. And then obviously, 1.3 retail Internet buyers who love precious metals that A Mark can now offer, whether it be storage, whether it be finance, all kinds of things that we will be able to now offer to the JM customer base, plus all the things that Michael and I have talked about over the last six years that we really believe now will be the time to introduce products. I think with the combined staffs and the combined brainpower, we will quickly be integrating things that Michael as he's operated JM Bullion and just focused on growth and delivering products, I think having the A Mark team behind him and being able to delegate some of the ideas that we've had together. We're very enthusiastic about, again, the one plus one equals three or four as it relates to being able to really create an unparalleled experience for the JM customers.
Not to mention, I mean, as I said in my comments, Michael and his team at JM Boynton are one of the best that I've ever seen as it relates to online marketing, generation of new customers, bringing new customers efficiently, price wise and taking care of them onto the platform. We've experimented the last six months and actually had J. M. Bullion provide some online marketing for Goldline in a limited capacity. And the success we've seen from Michael's team to be able to attract and generate the demographic that likes the Goldline platform has been just fantastic.
And now that we're together, I can't wait to see what Michael and his team can do to bring more customers to the Goldline platform as well as look for ways that Goldline and its customer facing products can meld and be connected to what Michael has done with J. Embole and customers.
Speaker 5
Thank you for taking my questions and congratulations again for a really exciting acquisition here. It's going to be fun to watch.
Speaker 1
Thank you. Thank you, Craig.
Speaker 0
Our next question comes from the line of Sarkis Sherbetchyan with B. Riley FBR. You may proceed with your question.
Speaker 6
Thanks for taking my question.
Speaker 1
Good to hear from you again.
Speaker 6
Yes. Hey, congrats on the acquisition. And Michael, welcome to A Mark. Greg, if I heard this correctly, was pretax income for JM Bullion $62,000,000 for 2020?
Speaker 1
Yes. You heard that correctly.
Speaker 6
And that's on $79,000,000 of gross profit dollars?
Speaker 4
Correct.
Speaker 6
So 78% of gross profit dollars are going to pretax income, it seems. Is there an opportunity for kind of further expansion on that margin take? Or do you think there's some investment there? Just help me understand what you're seeing from also a P and L opportunity perspective.
Speaker 1
New products, yes, it's open. Yes, I'm going let Michael answer that because he has some really exciting plans for new products, products that are in high demand with a little bit better profit margins. But I'll let Michael talk to that and maybe Michael can go through some SKU numbers of where we are today and where we hope to be with the help of A Mark and all of our different vendors and suppliers?
Speaker 2
Yes. Thanks for the question. I think there's certainly the opportunity to expand our baseline margins going forward, primarily through new and exclusive product development that we'll be able to do with A Mark. Historically, we've been pretty much predominantly focused on customer acquisition and shipping packages and frankly we've had all the demand that we could even deal with. So this is an area of opportunity that now that we have additional resources and the A Mark team there to help us with the supply chain and new product design, I think we'll be able to bring a lot of these items to market.
So right now, historically, we've been somewhere between 3,000 unique SKUs on the website. We're a little lower right now because we've sold out of so many items. But going forward, I would say that our target will be to build to 3,000 to 5,000 SKUs in the next year or two. And the bulk of those which we add will be higher margin products than we've historically offered, more collectible, unique custom type coins. So looking forward to working on that together and think we have a lot of opportunities there.
Speaker 6
Thanks for that Michael. I think the other point I want to touch on and this could be both more of kind of the current environment of what we saw here in January and February as well as just kind of the the opportunity at at, JM Bullion and A Mark with the supply chain. Right? So there's a lot of places that don't have physical product in stock. I guess, can you maybe help the the folks listening to the call understand what A Mark's supply chain and and JM's access and reach to customers.
You know, how does how does that work, together kind of now and and also going forward to, you know, service demand where maybe at other locations, there just is no physical? And and how does that relate to your spreads?
Speaker 2
Yeah. You hit the nail on the head with that. Obviously, when, there's not enough product out there and our competitors don't have certain core SKUs, our ability to have those in stock is extremely meaningful. We have so much traffic and customer activity that we're essentially only constrained by how much product we can get. So obviously this partnership completely changes that dynamic to where we can be front of line to access the SilverTowne production.
A Mark's authorized purchaser at every relevant government in the world. So this is really a game changer for us in terms of being front of the line to keep our products in stock. And as you mentioned, obviously, if we have stuff that other companies don't, the premiums move in our favor accordingly. So very excited about that as well.
Speaker 6
Thanks for that. Greg, maybe if you can comment route to potentially financing the transaction. It seems like there's a portion that's going to be A Mark shares and the other portion seems to be cash. So just trying to get a sense for how you would imagine being able to complete the transaction, if you
Speaker 2
can speak to that, please?
Speaker 1
Sure. Yes. We want to we obviously want to take advantage of any opportunities we have to finance it that's in the best interest of all the shareholders that we have. I think as we said in the release, we're looking at a combination of company cash, a potential equity offering and potential debt offering. We're exploring everything right now.
Our friends at Davidson and Roth are helping us with that and explore different opportunities. And we believe that there's plenty of supply out there for us to put this together. And we look forward to getting started on that and the Board and myself and we'll be looking at what's the best deal for the shareholders. And that's what we're focused on. But we want to keep all of our options open and see what looks like the best opportunity for A Mark.
Speaker 6
Great. Thanks for that. And Thor, if I can throw one your way. As far as kind of the current environment in volatility and spreads, can you maybe talk about what you guys are seeing just given the supply constraints and given the elevated level of interest in precious metals?
Speaker 4
Yes, mean, we're continuing to see elevated spreads as we've talked about on some of these previous calls, really starting with the pandemic in the springtime and continuing now into almost a full year, as Greg alluded to, there's really a number tailwinds we're continuing to see that really are not COVID related, whether it be events in Washington, other geopolitical activities. You've heard everyone on this call talk about where physical demand has been. So you're continuing to see strong demand. You've had issues like the Reddit folks running silver prices up and down very rapidly quite recently. Really, all of those conditions continuing to sustain a marketplace where you're seeing unusually high premium spreads.
At times, as Greg said, we've seen the market slow and come back. But in general, we're continuing to see pretty strong spreads, in particular, in silver products.
Speaker 6
Fantastic. Thanks for the color guys and continued success.
Speaker 1
Great.
Speaker 0
Our next question comes from the line of Mitch Almey with Wedbush Securities. You may proceed with your question.
Speaker 1
Hi, Greg. Hello, Mitch.
Speaker 7
Nice job adding to the adding to the business. A couple of questions. After you built Vegas and we met, one of the things you were gonna do was build your facility in Vegas and then you bought Silver Town and then Goldline and then this continues and then Sunshine. For most of that period of time, the market was sort of in a funk, and you took some market share from a lot of folks. And I'm wondering if you can just speak to what that gives you in terms of pricing power now, what it gives you in terms of flexibility, and then whether it makes sense to, at some point, bring all those things together or if it's better that they that they all keep their various little platforms out there and contribute that way as opposed to being part of either the JM or the A Mark brand I guess.
Speaker 1
Right. Yes. I mean, I think as it relates to the question, as it relates to having the supply and being able to make sure that A Mark customers have supply and have product, I think certainly the Sunshine and SilverTowne deals are important to that. I believe that as we've talked about before, our guys at SilverTowne and what they've been able to accomplish ramping up and working 20 fourseven and producing the quality of products that they've been able to do and just make products that Silvertown Mint really had never made before from different sizes, different qualities, different designs. It's really helped create new SKUs for all of A Mark's customers as well as help JM create new products that their customers are asking for.
And I think that Sunshine, as you know, we're very excited about our investment in Sunshine. Tom Power at Sunshine is just a great operator. He's been doing this forever. He really sets the gold standard as it relates to quantity of ounces and quality. And that's proven by the fact that all the sovereign mints come to him for the work he can do.
I think that Silvertown has a great relationship with Tom and Sunshine, Jamie at Silvertown has a great relationship with the guys at Sunshine. And I think they're both learning from each other. And I think it's been what we've really found is that each site, each Mid does a little bit different product and very complementary, definitely all rowing in the same direction. And so I don't at the moment believe that there's really any reason not to run all of our units as independent brands. I think that Michael and JM accomplished the acquisition of Provident Metals about one point years ago and integrated that very quickly into the JM Bullion platform, but continued to operate Provident as a stand alone brand and website.
And to be honest, what we found is that, that customer base at Provident is a unique subset of the precious metals marketplace and that customer base likes the Provident brand. Michael has been able to bring back a number of products that Provenant sold years ago that had discontinued. And Michael was able to manufacture those products with David Madge and Jamie's help at the SilverTowne Mint. And he's been able to bring back a number of new products that the provident customers really wanted to see. So I mean, I think we run as one platform, as one brand, But my style is I like to let the different brands have their own anonymity.
And I feel like that's what works in our business at A Mark.
Speaker 7
Great. Then I got a couple of kind of quick ones. As we did with JM Bullion, you established a stake back in 2014 and I guess at some point you established a stake or a convertible loan in Sunshine. And then here when business gets good, we learn you have these. So it sort of begs the question without giving any names, are there any more of these companies out there that are sort of strategic in the industry that you own pieces of that we look forward to possibly adding down the road?
Speaker 1
For sure. I think that again, as Michael demonstrated in the provident deal, they had a unique following and they had a diverse customer base that was that liked the provident products. And I think that certainly as we look at opportunities out there, I think geographic location is important. I think certainly a customer in Canada or a customer in Europe might that customer may like dealing with a local company. And I believe that A Mark is very well positioned that if the opportunity presents itself and I think this Michael and I will certainly look at every opportunity, but I do believe that there is the potential for more consolidation.
And as we've said in our filings before, we have an opportunity and an option to take a greater stake in Sunshine. And that's something as Tom believes it's a good thing to do. And as Tom grows his business, I don't see any reason why A Mark wouldn't take advantage of we are we have an option to convert our debt into equity. And as Tom performs and Sunshine performs, I think we'll definitely take a strong look at that.
Speaker 7
Super. Who is going to buy the bars that come out of the Pizza Hut? And is this and are these something that are currently available on the market here in The U. S?
Speaker 1
I believe that the guys at Silvertown Mint are going to be able to produce product there that comes out of this machine that is very similar to other products in the marketplace that are actually hand poured or struck. This product these will be cast products. And I would think of it a little bit more like let's call it in silver, would call 100 ounce bars are the most likely product that we can make very efficiently and cheaply in this machine. It's not going to take the place of a real high quality struck one ounce silver coin. But I believe we can mimic the quality of a poured bar with this machine and do it very efficiently.
The beauty of these machines, these two machines are they run pretty much automated 20 fourseven with very, very little human interaction. And we just believe it's a game changer. We could really use right now the extra one point million to 2,000,000 ounces a month of silver product that these machines will be able to make hopefully within the next three to four months. And again, give JM and give all the AMR customers access to product that they really need right now.
Speaker 7
Sure. And one final question. At the U. S. Mint, where is your allocation right now roughly?
Speaker 1
With the U. S. Mint?
Speaker 7
Yes.
Speaker 1
We generally get anywhere between 2535% of the silver one ounce Eagles. And the gold product is a little bit lower than that, but it can be around the same numbers. So it's the other event that's happened in the last few weeks in conjunction with some significant increase in demand is that the U. S. Mint has been on allocation and they've had some limitations on what they can produce.
And certainly from what Michael and I can see right now, there's more demand for the U. S. Mint products than what they can produce. So we're seeing some shortages there.
Speaker 7
Great. Well, you've answered my questions. Again, congratulations and thanks for taking the time. See you.
Speaker 1
Thank you.
Speaker 0
Our next question comes from the line of Chris Sakai with Singular Research. You may proceed with your question.
Speaker 8
Hi Greg. Hi. Just had a question on your sequential the sequential ounces of gold and silver sold, ticket volume, and inventory turnover all sequentially seem to be decreasing. I wanted to see if if it without, you know, any of the the Robinhood frenzy, are we seeing a some sort of industry trend here? And I wanted to see as well what Michael had to say about this at JMB.
Speaker 1
Are you talking about our ounces and ticket counts in Q2 that we just reported? Are you looking at those that they are down from the previous quarter? Was that the question? Yes. Yes.
I would attribute that a little bit to timing. And I think I can speak for Michael on this because we talk about it all the time. There was a in our Q2 up to the election, I would say that demand was good. For whatever reason, after the election, we saw a little slowdown in November. I think it was just everybody catching their breath.
I mean it was a big buildup to the election. I think that for the final three weeks November and probably the February December, we did see a little bit of a just a take a breather and catch your breath kind of thing. But I will say that in the December and certainly the five weeks of 2021, we're seeing back to very significant demand, good ounces, good ticket count, good premiums. It's just we go through these periods, but I am I think both Michael and I are very excited and interested in how the demand has come roaring back. And maybe Michael can talk a little bit more towards what he's seen in the last five or six weeks.
Speaker 2
Yes, would echo what Greg said. The December, I think particularly after the Senate runoff elections into January, we started to see things really pick up across all the products we offer, but particularly on the gold side. And then, you know, the the January, Greg touched on this earlier, but the the whole silver squeeze movement on, you know, Reddit and it got all this media attention that really spurred silver demand that we just haven't seen before. So we're just trying to keep up with it at this point.
Speaker 8
Okay, great. Well, thanks for that and I look forward to seeing you next quarter.
Speaker 1
Thank you.
Speaker 0
Our next question comes from the line of Richard Gruelage with REG Capital Advisors. You may proceed with your question.
Speaker 5
Thank you. I have two questions. is is the balance sheet
Speaker 1
of There's no debt. Our transaction contemplates buying JM Bullion with no debt and a significant amount of tangible net worth that we will acquire as part of the deal. JM also anticipates doing a dividend prior to closing above the amount of tangible net worth that we will acquire. But the transaction contemplates no JM bullion debt at closing.
Speaker 5
Okay. Thank you. And in terms of your financing, the cash portion of it, were while it was mentioned a possible convertible debt offering, are you considering it all just a straight debt offering?
Speaker 1
I think that we are considering everything and any product or anything that we can look at. And I don't think we've settled on any one thing yet, but certainly a debt offering or an equity offering is definitely possible. I think also our balance sheet and our cash gives us flexibility to do whatever is in the best interest of the shareholders. And we're taking a very careful and close look at that.
Speaker 5
And do you believe that there's an opportunity for a private equity offering at a premium to what the public equity offering might be?
Speaker 1
That is not something I've contemplated, yes, but I appreciate you offering the suggestion. Thank you. Good luck. Thank you.
Speaker 0
Our next question comes from the line of Craig Irwin with ROTH Capital Partners. You may proceed with your question.
Speaker 5
Thanks for taking the follow-up. I know this is a hard question to answer because of the availability of product right now. But if you were to compare peak fear, right, when COVID was becoming a real issue and activity recently with Wall Street Bets, Reddit, how would you compare the differential activity sort of on a weekly basis between the different peaks in demand? And would you say that, you know, this surge in activity we've seen recently is similarly as broad based? And would you maybe call it broader based on the number of incremental buyers, you know, up more than 100% year over year in the market at this point?
Speaker 1
I'll try to answer that. Don't know. I can't really get into the mind of every buyer of silver or gold right now. But I will say that the quickness and the ability to just rally a group of people to buy the same product all at the same time is probably not something we've ever seen before. I would say that that is unprecedented.
And I think if you look at the weekend of the last two days of January and February 1 and you went to the SLV envelope and just the amount of silver that traded on the London Exchange, I don't know that there's ever been a combination of physical buyers, ETF buyers and futures buyers that have ever come together so quickly in a seventy two hour period. And I think that's it's definitely unusual for us. I think it says a lot about how little silver is out there and how little gold is available and that when a brand new group of people decide they want to buy a product or buy a stock or buy an equity, it definitely is a game changer. And I think that we're very curious and we want to see how this plays out. And we'll do everything we can.
I mean Michael was on CNBC a few times through that. Were mentioned J. M. Bullion was mentioned in a number of pieces that promoted the best place to buy silver. And that kind of promotion and that kind of exposure of Michael and JM Bullion to the retail silver buyers was really just astonishing for us.
Speaker 5
Excellent. And then another follow-up question. So acquisitions like this are never completed in a fortnight, right? You've obviously been working on this for several weeks. Can you come up that?
That's a confirmation. So this predates the activity that we've seen in the last couple dates Are these updated for the activity in the last couple weeks? Or are these maybe December 31 numbers that might need updating after all the metrics are in at the end of your March?
Speaker 1
Yes. Just Michael and JM just finished their audit. So the numbers you are seeing, I believe, are as of December 31. So they do not yet incorporate the activity that we've seen in 2021. So we've identified some metrics that we really want to use going forward.
And we're looking forward to comparing what will be A Mark's Q3 numbers once we have that information from JM at the end of this current quarter. But they're not in those numbers at the moment.
Speaker 5
Okay. And then can you maybe quantify for us or estimate for us what the Q1 activity looks like as far as increased increased repeat customers with the very strong activity we've seen in the last couple of weeks?
Speaker 1
It's probably not good to talk about exact numbers. I will just say that when we have numbers that we can put out, we will. And right now, I think that I can't imagine really that we haven't had just a tremendous amount of new customers. I think it's been a very active period for new customer acquisition. And certainly from the numbers that we're seeing related to JM's performance and A Mark's performance, the five weeks are particularly robust and active.
Speaker 5
That's great. Thanks again for taking my questions.
Speaker 1
Thank you.
Speaker 0
At this time, this concludes our question and answer session. I'd like to turn this call back over to Mr. Roberts for closing remarks.
Speaker 1
Thank you, Laura. 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 A Mark's progress going forward.
Speaker 0
Before we conclude today's call, I would like to provide A Mark's Safe Harbor statement that includes important cautions regarding forward looking statements made during this call. During today's call, there were forward looking statements made regarding future events. Statements that relate A Mark's future plans, objectives, expectations, performance, events and the like are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the Securities Exchange Act of 1934. Future events, risks and uncertainties individually or in the aggregate could cause actual results to differ materially from those expressed or implied in these statements. Factors that could cause actual results to differ, 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 suppress pricing the failure of the company's business model to respond to changes in the market environment as anticipated general risks of doing business in the commodity markets and other business, economic, financial and governmental risks as described in the company's public filings with the Securities and Exchange Commission.
The words should, believe, estimate, expect, intend, anticipate, foresee, plan and similar expressions and variations, therefore, identify certain of such forward looking statements, which speak only as of the date on which they were made. Additionally, any statements relate to future improved performance and estimates of revenues and earnings per share are forward looking statements. The company undertakes no obligation to publicly update or revise any forward looking statements. Readers are cautioned not to place undue reliance on these forward looking statements. Finally, I would like to remind everyone that a recording of today's call will be available for replay via a link in the Investors section of the company's website.
Thank you for joining us today for A Mark's earnings call. You may disconnect your lines at this time.