Gold.com, Inc. (GOLD) Q2 2021 Earnings Report, Transcript and Summary

Good afternoon, and welcome to A-Mark's Precious Metals Conference Call for the Fiscal Second Quarter Ended December 30, 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 2021 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 today our today's call are: A-Mark's CEO, Greg Roberts; President, Thor Gjerdrum; CFO, Kathleen Simpson Taylor; as well as JM Bullion's Co-Founder and CEO, Michael Wittmeyer. 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.

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 JM Bullion. We also issued a press release with our financial results for the second quarter and first six months of Fiscal 2021 -- 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-Mark, 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 $8.9 million in net income attributable to the company, which contributed to the most profitable first 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 we have been experiencing 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 JM Bullion with improved supply during supply constraint 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 JM Bullion -- a leading e commerce retailer of precious metals to acquire the remaining 79.5% of the issued and outstanding shares of JM Bullion not currently owned by A-Mark. Before discussing JMB in 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've 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 100 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 ecommerce 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 JM Bullion back in 2014 and more recently, through minority investments in two other precious metals' ecommerce businesses, each of which serve differentiated customer basis. Over the past six years, we have been able to make further investments in JM Bullion and have enjoyed a highly synergistic relationship together. We are now very excited to add JM Bullion and its management team to our business as the combination of A-Mark and JM 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 cofounder and CEO Michael Wittmeyer, who is on the call with us today leveraged his team's expertise in ecommerce 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 ecommerce was transforming how retail investors bought and sold precious metals. Over the past several quarters, we've watched JM 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.

Thank you, Greg, and good afternoon, everyone. Thanks for having me join the call. Today is a very exciting day in JM's history in 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, so that 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 jmbullion.calm, 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 and products 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.

Thanks, Michael. With this acquisition, JM Bullion becomes the anchor in our direct-to-retail strategy, significantly bolstering A-Mark's capabilities and dramatically broadening our consumer facing footprint and brand portfolio. More specifically, our strategic rationale for the acquisition is based on five pillars. First, JM 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 forma basis. Second, JM 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 JM Bullion plus Goldline. With the acquisition of JM Bullion, A-Mark has significantly bolstered its direct-to-consumer capabilities and broaden its consumer-facing brand portfolio. Third, JM 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. Fourth, JM Bullion's proven and proprietary online marketing strategies enable it to acquire customers at attractive rates and realize average order values at over 50x its customer acquisition costs. On top of this JM Bullion's rapidly growing total number of users, which grew at a 31% annual rate in 2020, adds 1.3 million new users to A-Mark's direct sales segment. This newly acquired customer base had an average order value of $2,020 in 2020, which will help drive additional profitability for A-Mark. And finally, the A-Mark and JM Bullion leadership teams have significant precious metals market expertise and deep online and ecommerce experience. Given our familiarity with JM Bullion, including our close working relationship with its leaders and integrated workstream 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 ecommerce channels. From a financial perspective, JM Bullion adds significant scale to A-Mark's already-robust profile. JM Bullion's fiscal year ended December 31, 2020, it generated net sales nearly $1.5 billion and gross profit of nearly $79 million, with pretax income in excess of $62 million. 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 1.3 million. On this amount, more than 300,000 users are classified as active, meaning they completed at least one transaction with JM Bullion during calendar 2020. In terms of consideration and transaction structure, A-Mark will pay $138.3 million for the 79.5% of JM Bullion it does not currently own, implying a total valuation of JM Bullion of $174 million. Of the $138 million purchase price, $103 million will be in cash and $34.5 million 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 2021, subject to customary closing conditions and regulatory approval. Following the close. Michael Wittmeyer and JM Bullion's Chairman Kendall Seville will join A-Mark's Board of Directors. Michael will remain CEO of JM 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 2021 in more detail. Kathleen?

Thank you, Greg, and good afternoon, everyone. Turning to our financial results. Our revenues for Fiscal Q2 2021, increased 44% to $1.52 billion from $1.06 billion 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 months period, our revenues increased 33% to $3.38 billion from $2.54 billion 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 2021 increased 131% to $18.8 million, or 1.24% of revenue from $8.1 million or 0.77% of revenue in Q2 of last year. For the six months period, gross profit increased 233% to $54.9 million or 1.6% of revenue from $16.5 million or 0.6% of revenue in the same year-ago period. The increase in gross profit for both the quarter and the six months period was due to higher gross profits earned by our wholesale sales and ancillary services, and direct sales segments. SG&A expenses for Fiscal Q2 2021 increased 15% to $9 million from $7.9 million in Q2 of last year. The increase was primarily due to increases in insurance costs of $0.5 million, financial and tax consulting costs associated with the acquisition of $0.4 million, compensation expense including performance based accruals of $0.3 million and $0.1 million of advertising expense. The increase in SG&A was partially offset by decreases in operating expenses of $0.1 million associated with our direct sales segment and depreciation and amortization expense reduction of $0.1 million. For the first six months of the fiscal year, SG&A expenses increased 18% to $19 million from $16.1 million in the same year-ago period. The increase in SG&A expenses was primarily due to increases in compensation expense, including performance-based accruals of $2.2 million, insurance costs of $0.4 million, financial and tax consulting costs associated with the acquisition of $0.4 million, computers software costs of $0.2 million and advertising costs of $0.2 million. The increase in SG&A was partially offset by decreases in operating expenses of $0.3 million associated with our direct sales segment, and $0.2 million for depreciation and amortization expense. Interest income for Fiscal Q2 2021 increased 14% quarter-over-quarter to $4.5 million from $4 million in Q1 of Fiscal 2021, but decreased 27% from $6.2 million in Q2 of Fiscal 2020. This is as a result of fewer secured loans outstanding due to the drop in silver prices in Q3 of Fiscal 2020. For the six months period, interest income decreased 29% to $8.5 million from $12 million in the same year-ago period. The decrease for both the quarter and the six months 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 2021 decreased 1% to $5 million from $5.1 million 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 months period, interest expense decreased 9% to $9.3 million from $10.2 million 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 2021, net income attributable to the company totaled $8.9 million, or $1.16 per diluted share. This was a significant improvement from net income attributable to the company of $1.2 million or $0.17 cents per diluted share in Q2 of last year. For the six months period, net income attributable to the company total $32 million or $4.21 per diluted share, which compares favorably to $1.4 million or $0.19 cents per diluted share in the same period last year. Turning to our balance sheet. At quarter end, we had $14.9 million of cash compared with $52.3 million of cash at the end of fiscal year 2020. Our tangible net worth at the end of the quarter was $104.9 million, up from $91 million at the end of fiscal year 2020. That completes my financial summary. Now, we will turn the call over to Thor who will provide an update on our key performance metrics. Thor?

Thank you, Kathleen. Looking at our key operational metrics for the second quarter and first six months of Fiscal 2021, we sold 479,000 ounces of gold in Q2, which was increased to 12% from Q2 of last year, but down 34% from the prior quarter. For the six months period, we sold 1.2 million ounces of gold, which is up 20% for the same period last year. We sold 21.2 million ounces of silver in Q2, which was up 51% from Q2 of last year and down 12% from last quarter. For the six months period, we sold 45.5 million ounces of silver, which was up 30% for the same period last year. Wholesale ticket volume, our second key metric decreased 16% to 29,797 tickets from the prior quarter, and decreased 3% for Q2 of last year. For the six months period, wholesale ticket volume decreased 3% to 65,138 [ph] tickets to the same 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 third 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 5.0 in the prior quarter and up 9% with 3.3 in Q2 of last year. For the six months 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 1,324, increase of 18% for 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 total of $95.8 million, which is up 14% for 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 as 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.

Thank you, Thor. Our business continues to benefit from the sustained rally in precious metals. The acquisition of JM 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 ecommerce 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 JM 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&A.

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes to line of Craig Irwin with Roth Capital Partners. You may proceed with your question.

Thank you. Good evening, and congratulations on this really interesting acquisition. Looks like an exciting opportunity that you're bringing together.

Thank you, Craig.

My first 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?

Well, I think the synergies we have seen particularly over the last 12 months are very enlightening to us. I believe that what we have witnessed with some of the weeks and months that we have had for JM Bullion has had unprecedented demand an 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 first week of February, where we had an unprecedent 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 JM Bullion or Goldline to sell immediately, it's a real game-changer and it 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 24 or 48 hours, same with a Goldline customer. And that ability to have product available really, 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 you know, it's just a natural progression. But really, 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.

Excellent, thank you. My second question is really about macro. So, you know, I really love the metrics you shared, active users up 70% year over year, total users up 30% more than 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 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 the increased interest and increased commitment of buyers to have a portion of their portfolio in precious metals.

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 12 months. I think that, you can pinpoint very easily, the events in March of 2020, 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. 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, you know, 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 30 days or so. You know, 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 big buzz words 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 out in the marketplace, which is a macro fear of economic deterioration of a devalued dollar, of 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 and silver. We just see a bigger wallet and a much bigger order size as well as first 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've saw early on in JM Bullion 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 higher initial order. You know, I've seen some customers at JM that start off with an initial order of $5000 to $10,000. And they end up, over a very short period of time buying six, seven figures of precious metals. And that's very, very positive. And in 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 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, you know, January 30, January 31, 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 you know, 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 JM 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 first time experience in precious metals.

Excellent. Greg, I also wanted to ask about the capacity expansion over its SilverTowne. How is the new pizza oven? How's the debottlenecking that you've been doing there working? Are we operating close to maximum capacity now?

Today, we're operating at about 550,000 ounces a week in production. We did have just due to logistics and the pandemic; we had a little 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 [ph] 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, the machine arrived in great shape. The reconstruction putting it together is going well. And we're very happy at all. So 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, but Michael and JM, we're happy to report, we have room. And we will be adding the second furnace and pizza oven to the SilverTowne facility in Indiana, probably sometime in April or May.

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 may be 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?

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 3 million retail internet buyers who love precious metals that A-Mark can now offer, whether it be storage, whether it be finance, you know, 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 Bullion 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. You know, we've experimented the last six months and actually had JM 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 you know, look for ways that Goldline and it's customer facing products can meld and be connected to what Michael's done with JM Bullion customers.

Thank you for taking my questions. And congratulations again for a really exciting acquisition here. It's going to be fun to watch.

Our next question comes from a line of [indiscernible] with B. Riley FBR. You may proceed with your question.

Hey, thanks for taking my question. Hey, congrats on the acquisition. And Michael, welcome to A-Mark. Greg, if I heard this correctly was pretax income for JM Bullion is $62 million for 2020?

Yes, you heard that correctly.

And that's on $79 million of gross profit dollars.

Correct.

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&L opportunity prospective?

I'm going to 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 skew 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?

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 1000 and 2000 unique skews 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 3000 to 5000 skews in the next year or two. And the bulk of those, which we add will be higher margin products than we've historically offered and more collectible unique custom type coins. So we're looking forward to working on that together and think we have a lot of opportunities there.

Hey, 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 opportunity 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 folks listening to the call understand what A-Mark's supply chain and JMs access and reach to customers? How did that work together kind of now and also going forward to service demand where maybe at other locations, there just is no physical? And how does that relate to your spreads?

Yes, 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 skews, 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 have 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 you know, we have stuff that other companies don't, the premiums move in our favor accordingly. So very excited about that as well.

Thanks for that. And, Greg, maybe we can comment on route to potentially financing the transaction? You know, 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 can speak to that, please?

Sure, yes. 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, potential equity offering and potential a debt offering. We're exploring everything right now, our friends at Davidson, and Ruther [ph] 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.

Great, thanks for that. And Thor, if I can throw one your way. You know, 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?

Yes, I mean, we're continuing to see elevated spreads, as we talked about on some of these previous calls. Really, starting with the pandemic, in the springtime, and continuing now into almost a full year. You know, as Greg's alluded to there's really a number of 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 are continuing to sustain a marketplace where you're seeing unusually high premium spreads. You know, 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.

Fantastic, thanks for the color guys and continued success.

Our next question comes from the line of Mitchell Almy with Wedbush Securities. You may proceed with your question.

Hi, Greg. Nice job and adding to the business. A couple of questions after you built Vegas, when we first met, one of the things you were going to do was build your facility in Vegas, and then you bought SilverTowne 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 all keep their various little platforms out there. And contribute that way, as being part of the either the JM or the A-Mark brand, I guess?

Right. I mean, I think as it relates to the first question, as it relates to having a supply and being able to make sure that A-Mark customers have, 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 24/7 and producing the quality of products that they've been able to do, and just make products that SilverTowne Mint really had never made before from a different sizes, different qualities, and different designs. It really helped create new skews 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 is 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. And, and I think that SilverTowne has great relationship with Tom and Sunshine. Jamie [ph] at SilverTowne 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 really found is that each site, each cup, each mid does a little bit different product, and very complimentary. 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. You know, I think that Michael and JM accomplished the acquisition of Provident Metals about a year and a half ago, and integrated that very quickly into the JM Bullion platform, but continued to operate Provident as a standalone brand and website. And to be honest, what we've found is that customer base at Provident is a unique subset of the precious metals marketplace, and that customer base likes the Provident brand. Michael's been able to bring back a number of products that Provident sold years ago that had discontinued. And Michael was able to manufacture those products with David Magian [ph] 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.

Right. Then I got a couple of kind of quick ones. As we did with JM Bullion, you establish 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 had these. And 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, that we'll look forward to possibly adding down the road?

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 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, you know, 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 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 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 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.

Super, who is going to buy the bars that come out of [indiscernible]. And these are just -- and are these something that are currently available on the market here in the U.S.?

I believe that the guys at SilverTowne 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. These will be cast products. And I would think of it a little bit more like let's call it in silver, you would call 100 ounce bars are the most likely product that you know, 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 two machines are they run pretty much automated 24/7 with very little human interaction. And we just believe it's a game changer and we could really use right now the extra 1.5 million to 2 million 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 A-Mark customers access to product that they really need right now.

Sure. Then one final question at the U.S Mint, where is your allocation right now, roughly?

With the U.S. Mint?

Yes.

We generally get anywhere between 25% and 35% 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, 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, there's more demand for the U.S Mint products than what they can produce. So we're seeing some shortages there.

Congratulations, and thanks for taking the time. See you.

Our next question comes from a line of Chris Sakai with Singular Research. You may proceed with your question?

Hi, Greg. Just had a question on the sequential ounces of gold and silver sold, ticket volume and inventory turnover, all sequentially seem to be decreasing. Wanted to see without any of the Robin Hood frenzy, are we seeing some sort of industry trend here? And I wanted to see as well what Michael had to say about this at JMB?

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 first question?

Yes, I would attribute that a little bit to timing. And I think, I can speak for Michael on this, because we talked about it all the time. 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 build up to the election. And I think that for the final three weeks of November, and probably the first two weeks of December, we did see a little bit of a, just a take a breather, and catch your breath kind of thing. But I -- but I will say that in the last week of December, and certainly the first five weeks of 2021, we're seeing back to very significant demand. Good ounces, good ticket count, good premiums. And it's just, you know, we go through these periods. But I think both Michael and I are very excited and interested in how the demand has come rolling back. And maybe Michael can talk a little bit more towards what he's seen in the last five or six weeks.

Yes, I would echo what Greg said the latter half of 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, the end of January, Greg touched on this earlier, but the whole silver squeeze movement on 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.

Okay, great. Well, thanks for that, and I look forward to seeing next quarter.

[Operator Instructions] Our next question comes from line of Richard Greulich with REG Capital Advisors. You may proceed with your question.

You have two questions. The first is what is the balance sheet of JM Bullion look like in terms of the, is there any debt attached to it?

There is 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.

Okay, thank you. And in terms of your financing the cash portion of it, while it was mentioned to convert a possible, convertible debt offering, are you considering it all, just a straight debt offering?

I think that we are considering everything in 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, you know, our balance sheet and our cash gives us flexibility to do whatever, whatever is in the best interest of the shareholders. And we're taking a very careful and close look at that.

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?

That is not something I've contemplated yet. But I appreciate you offering the suggestion.

Thank you. Good luck.

Our next question comes from the line of Craig Irwin with ROTH Capital Partners. You may proceed with your question.

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, this surgeon 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, more than 100% year over year in the market at this point?

I mean, I'll try to answer that. I mean, I 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 it 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 72 hour period. And I think that's, you know, 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 equity. You know, 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, you know, we were mentioned, JM Bullion was mentioned in a number of pieces that promoted the best place to buy silver. And, you know, that kind of promotion and that kind of exposure of Michael and JM Bullion to the retail silver buyers, is really just astonishing for us.

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 -- normal case [ph], that's a confirmation. So this predates the activity that we've seen in the last couple of weeks. Can you maybe clarify for us the metrics, the customer counts? Are these updated for the activity in the last couple of weeks or these may be December 31 numbers that might need updating after all the metrics are in at the end of March quarter?

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, you know, we've identified some metrics that we really want to use going forward. And we're looking forward to comparing what will be A-Marks 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.

Okay. And then can you maybe quantify for us or estimate for us what the Q1 activity looks like, as far as increased customers, increased repeat customers? You know, with the very strong activity we've seen in the last couple of weeks?

You know, 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 have 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 first five weeks are particularly robust and active.

That's great. Thanks again for taking my questions.

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.

Thank you, Laura. Thank you all for joining our call today. As always, we appreciate your interest in continued support. We look forward to keeping you apprised of A-Mark's progress going forward.

Before we conclude today's call, I'd 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 an aggregate could cause actual results to differ materially from those expressed or implied in these statements. Factors that could cause actual results to differ include the following. Failure to execute the company's gross 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 markets and other businesses; 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 or see, plan, and similar expressions are variations thereof identify certain of the forward looking statements, which speak only as of the date on which they're made. Additionally, any statements related to future improved performance and estimates of revenues and earnings per share are forward looking statements. The company undertakes no obligation to publicly update or revise any forward looking statements. Readers are cautioned not to place undue reliance on these forward looking statements. Finally, I'd like to remind everyone that a recording of today's call will be available for replay via link in the investor section of the company's website. Thank you for joining us today for A-Mark's earnings call. You may now disconnect your lines at this time.