Ladies and gentlemen, good morning, and welcome to A-Mark Precious Metals conference call for the fiscal second quarter ended December 31, 2017. My name is Adam, and I will be your operator this afternoon. A-Mark issued its results for the fiscal second quarter and 6 months of 2018 in a press release, which is available in the Investor Relations section of the company's website at www.amark.com. You can find the link to the Investor Relations section at the bottom of the home page. Joining us today on our call are A-Mark's CEO, Greg Roberts; President, Thor Gjerdrum; and CFO, Cary Dickson. Following their remarks, we will open the call to your questions. Then before we conclude today's call, I will provide the necessary cautions regarding the forward-looking statements made by management during this call. I would like to remind everyone that this call will be recorded, and it will be made available for replay via a link available in the Investor Relations section of the company's website. Now I would like to turn the call over to A-Mark's CEO, Mr. Greg Roberts. Thank you. Please proceed.

Thank you, Adam, and welcome, everyone. Thank you for joining us this afternoon. As you can see from today's release, our financial results for the quarter and first six months of the year were, yet again, impacted by subdued conditions in the precious metals market, which have persisted since the 2016 election. The second quarter was marked by another period of historically low sales levels at the United States Mint, reinforced by the sustained strength of U.S. equities markets as a whole. Despite this, we continued to execute our plan to grow our market share. Underlying our headline results for the quarter, however, were a couple of key highlights, which, we believe, demonstrate the value of our diversified business model and our expanding suite of offerings. First, and perhaps more importantly, our finance book continues to perform exceptionally well in -- during Q2. In fact, the number of secured loans increased over 60% year-over-year to a record 2,823. This achievement also helped produce a 10-year -- 10% year-over-year increase in interest income during the quarter. On top of this, we saw steady improvements in our TDS storage business, with the number of both gold and silver ounces in custody up nicely over the year-ago period. We also experienced solid performance in our custom products business in Q2, reflected by the 27% increase in the total custom product margin compared to the prior quarter. From an operational standpoint, during Q2, we continued to execute on our strategic initiatives to grow our market share and invest in our business and further diversify and strengthen our product offerings to our customers. We believe that the measured actions that 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…

Thank you, Greg, and good afternoon, everyone. Turning to our financial results for the second quarter and 6 months ended December 31, 2017. Our revenues for fiscal Q2 2018 decreased 21% to $1.68 billion from $2.13 billion in the same year-ago quarter. For the first 6 months of the year, our revenues decreased 2% to $3.84 billion from $3.93 billion in the same period last year. The decrease for both periods was mainly due to a decrease in the total amount of gold and silver ounces sold and lower silver prices offset by higher gold prices and an increase in forward sales. Gross profit for the fiscal second quarter of 2018 decreased 10% to $8.8 million or 0.53% of revenue from $9.9 million or 0.46% of revenue in Q2 of last year. For the 6-month period, our gross profit decreased 10% to $16.2 million or 0.42% of revenue from $17.9 million or 0.46% of revenue in the same year-ago period. The decrease in gross profit for both periods was primarily related to a decrease in the total volume of gold and silver ounces sold, partially offset by higher gross profits realized from our newly acquired Direct Sales segment, Goldline. The decrease in gold -- in volume of gold and silver ounces during the periods was primarily related to slower market conditions compared to the same period last year. Now turning to our expenses. Selling, general and administrative expenses for the second quarter of 2018 increased 53% to $9.3 million from $6.1 million in Q2 of last year. For the first 6 months of 2018, SG&A increased 38% to $16.3 million from $11.8 million in the same year-ago period. The increase for both periods is primarily due to SG&A expenses relating to our newly acquired Direct Sales segment, Goldline, and other…

Thanks, Cary. Turning to our key operational metrics for the quarter and first 6 months of fiscal 2018. Looking at our first key metric, gold and silver ounces sold, which represents the ounces of metal we sell and deliver to customers during the period, excluding any ounces recorded in our forward contracts. This is an important metric, because it reflects the volume of business we are doing without regards to changes in commodity pricing, which figure into revenue and can mask underlying business trends. During the second quarter, we sold 376,000 ounces of gold, which is up 13% from the prior quarter, but down 51% from fiscal Q2 of last year. For the 6 months of the fiscal year, we sold 708,000 ounces of gold, which is down 46% compared to the same period last year. Additionally, in the 3 months ended December 31, 2017, A-Mark's percent of purchases from the U.S. Mint of gold bullion products increased 9% from the same year-ago quarter. Turning to silver. During Q2, we sold 12 million ounces of silver, which is down 18% from prior quarter and down 48% from Q2 of last year. The second key metric we track is trading ticket volume. This metric charts the total number of orders processed by our trading desk in Europe and the U.S. In periods of high volatility, there is generally increased trading in the commodity markets, and increased demand for our products, which translates into higher business volume. During fiscal Q2, our trading ticket volume increased 1% to 30,264 tickets in the prior quarter and decreased 14% from Q2 of last year. For the 6-month period, our trading ticket volume increased 5% to 60,147 tickets compared to the same period last year. The third key metric we evaluate is inventory turn, defined as…

Thanks, Thor. As I mentioned at outset of the call, we continue to be focused on initiative and activities to further diversify and strengthen our business and product offerings to our customers. One of the most important of these initiatives today is Goldline, which dramatically expanded A-Mark's distribution, especially in retail. The unique combination of Goldline sales and marketing expertise, coupled with our platform of products, logistics and storage expertise, has created what, we believe, is an unrivaled distribution platform for precious metals globally. This includes the client base that we purchased of more than 150,000 individual customers, many of whom have proven to be exceptionally loyal and recurring buyers, making them ideal consumers to benefit from our product, services and minting capabilities. The overall integration of Goldline's business is progressing as planned. From a financial standpoint, we continue to implement appropriate measures to realize financial synergies between our organizations. This includes further reduction of costs, wherever possible, including reduced advertising spending and headcount to better align Goldline with the current revenue trends and the commensurate market conditions. Shifting gears to our Las Vegas logistics -- our Las Vegas logistics facility continues to provide us with valuable complementary product and service offerings, including storage. Along that line, we recently received approval from GoldStar Trust Company for IRA storage. By way of background, GoldStar was established nearly 30 years ago and currently has approximately $2 billion in assets and more than 37,500 self-directed IRA accounts under its custody program. GoldStar reflects one of the many opportunities to rapidly grow our storage revenues. Another key component of our business is our minting operations through our majority ownership of SilverTowne Mint. The Mint continues to perform well, and provide us valuable production capabilities and supply. From a strategic standpoint, we continue to focus…

[Operator Instructions]. Our first question comes from the line of Sarkis Sherbetchyan from B. Riley.

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

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

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

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

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

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

Our CFC business, which is -- we're very excited and enthusiastic about the growth we've had in that. I mean, 2800 loans versus 1700 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. So 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 6 months, we have the ability to adjust rates up or down or leave them the same, which we manage. For the most part, if our cost of funds 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 6 months, and we've been raising rates in anticipation of interest rates rising.

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

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

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

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

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

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

I think it's a combination. I think that this run rate of overheads and SG&A in the second quarter that you're seeing today, I don't believe that's indicative of a long-term run rate. I think there's work that we've already accomplished that is positively affecting SG&A at Goldline as well as things that we're doing at A-Mark that we believe need to be made in line with the current volumes and the current environment that we're living in. There's certain expenses at Goldline that, to be quite honest, we have been very conservative in cutting, because we don't want to try to set the bar at the lowest level in 10 years of ounces sold in the marketplace. I think that's dangerous for us, because in the event that you get a prolonged volatility in the stock market, like we're getting today and yesterday and the day before, it takes time to ramp back up and hire back employees and hire back advertising contracts. So there is a balance. And although, it looks fairly ugly in the third -- in the second quarter, we believe we've made the right decisions to scale back where we needed to. And we're trying to size the business, at Goldline in particular, and at A-Mark to some extent. We're not trying to size the businesses to be reflective of what we need to spend for the lowest possible ounce counts per month. But we're trying to project what we should spend on what we think are going to ounce counts over the next 12 months. So I -- did we -- we're not able to predict exactly what those -- what that demand for physical metals is going to be in the marketplace. We, certainly, 6 to 8 months ago, realized that it was…

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

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

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

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

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

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

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

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

Yes, or even to understand in my head.

Right, right.

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

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

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

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

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

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

[Operator Instructions]. Our following question comes from the line of Mitch Almy from Wedbush Securities.

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

I think that what we really right now is, we need an acquisition that doubles our ounce count sold. I mean, that's really what is driving our growth and our future right now. What we see when ounce counts go up is that all, whether it's the mint or the logistics or A-Mark's trading desk or even Goldline, we see immediate results from that. We saw immediate results from JM Bullion on Friday, Monday, and Tuesday. And we have learned that JM Bullion usually leads the timeline of when we see something. I think that -- we believe, right now that we have -- the company has grown tremendously, and the company has positioned itself to make significantly more money than it has historically in the event that the market conditions and the ounce count demand was to return to previous levels. There's a backlog right now, and there is an inventory of physical gold and silver products out there in the marketplace that is, like, no different than a car manufacturer or somebody who's 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, as you can see from the mint numbers, it's not going up, it's going down. So I think that our initiatives right now are to continue to invest in assets that we think are beneficial to the company for the next 10 years that we believe, whether we're right or wrong, and we're not always going to be right.…

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

Yes.

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

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