Q3 2020 Earnings Call
[music].
Please stand by.
Good afternoon.
And welcome to embark precious metals conference calls for the fiscal third quarter.
At March 31st 2020.
My name is alley, and I will be your operator good afternoon.
Before this call Hey, Mark issued its result for the fiscal first quarter 2020 in a press release, which is available in the Investor Relations section of the company's website at Www Dot dot.
Dot com.
You can find the link in the Investor Relations section at the top of the home page.
Joining us for today's call or.
Mark CEO, Greg, Robert and President Thor, Gjerdrum, and CFO Kathryn Thompson Taylor.
They're following their remarks, we will open your call.
The question.
And before we conclude the call I'll provide the necessary cautions regarding forward looking statements made by management during the call.
I would like to remind everyone. This call is being recorded and will be made available for replay via a link available in the Investor Relations section of remarks website now I would like to turn the call over to earmarks CEO Greg Robert.
Christine please.
Thank you are already.
Good afternoon, everyone. Thank you for joining our fiscal third quarter 2000 earnings call.
Before we get into the business review I would like to take a minute to express our sincere condolences as well as Sundar support all of those.
Then directly or indirectly impacted on the ongoing global pandemic.
I think it's fair to started at nearly everyone has been affected in some way by the current environment.
Thank both for the frontline workers and health care providers for their dedication.
Provides during this challenging time.
Mark and its subsidiaries have continued to operate effectively and at full capacity. Despite the unprecedented global slowdown caused by the pandemic.
He said Gardner employees, we have instituted appropriate social distancing guidelines and practices, including work from home policies.
To spend at all non central business travel and implemented and health screenings and taken sanitation measures.
We are grateful to all of our employees for their dedication and commitment to our business. During this time.
I am Burger encouraged to report that all of our business units, including trading GFT mid teens and logistics are operating at full capacity, while adhering to state and federal government guidelines.
This would not have been possible without our teams unwavering dedication as well as a March best in class technical innovation.
Which has allowed us to quickly and effectively adapting to changing work structure.
I want to start with a few general thoughts about our results this quarter.
Hey, Mark with spot off as an independent company, we have been profitable in all but four quarters.
As you know hey, Mark tends to be more profitable in times of volatility, which is often generated by macroeconomic events.
One of those events and the resulting volatility.
Heard this quarter.
The key components, but hey, Mark, which weve assembled along the value chain, including our valued employees.
And customers worked together to deliver outstanding results.
Not everything worked perfectly and like most businesses, we did encounter some challenges in this quarter.
Particularly with our secured lending segment.
But overall, we were successful in delivery product support to our customers customers I didn't generate outstanding financial results for our shareholders.
A record financial results and operational performance in the third quarter.
Not always demonstrates the scalability of our platform.
But also the incredible demand for our physical products.
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Which increased significantly during the quarter.
The recent macroeconomic events have created significant demand related supply constraints and unprecedented volatility which have increased trading spreads in the precious metals market.
As I've discussed on prior calls we have strategic restructured our business model to maintain a baseline of profitability irrespective of the market conditions, but with the flexibility to adapt to capitalize on upside opportunities during periods of market volatility like we experienced in there.
Fiscal Q3.
22.5 million in gross profit and 11.3 million in net income we realized during the quarter exemplifies our business model.
Q3's, net income level was higher than any fiscal full year period is a marked became a publicly traded company in 2014.
Before I talk about our segment performance and outlook I'll now turn the call over to our CFO Kathleen Simpson Taylor.
To provide more details on the financials for the quarter and nine month period.
Kathleen free takeover.
Thank you, Greg and good afternoon, everyone.
Revenues for kids need three Twentytwenty decreased 1% for 1.6 billion from 1.7 billion in Q3 of last year for the nine month period, our revenues decreased 4% to 3.8 billion from 3.93 billion in the same year ago.
Area.
The decrease in revenues for the quarter and the nine month period was mainly due to look forward sales.
Led by an increasing the total amount of gold and silver ounces sold and higher selling prices of gold and silver.
Gross profit for fiscal Q3, Twentytwenty increased 158% to 22.5 million or 1.79% of revenue from 8.7 million, 1.69% of revenue in Q3 of last year.
Nine month period gross profit increased 63% 39 million or 1.03% of revenue from 25.5 million or Euro point.
65% of revenue in the same year ago period. This increase for Q3 and nine month period was due to higher gross profits earned by our well sell trading and ancillary services and direct sales segment and was driven primarily by significantly wider trading spreads as a result I think.
<unk> demand and higher trading profit.
Looking at our expenses.
As DNA expenses for fiscal Q3, 2020 increased 26% to 10.4 million from 8.3 million in Q3 of last year.
The increase was primarily due to increases in performance based compensation accruals, a 2.3 million and depreciation expense.
Point, Threemillion, which were partially offset by decreases in consulting expenses at 0.1 million and operating expenses of zero point fivemillion associated with our direct sales.
For the first nine months of the fiscal year as DNA census increased 10%.
Many 6.5 million from 24.1 million in the same year ago period increased primarily due to increases in performance based compensation accruals at 2.8 million and depreciation expense apparel point, Threemillion, which were partially offset by decreases in consulting expenses.
0.2 million and operating expenses at zero point Sixmillion associated with our direct sales segment.
Interest income for fiscal Q3, 2020 increased 24% to 6 million from 4.8 million in Q3 of last year.
For the nine month period interest income increased 28% to 18 million from 14 million in that same year ago period.
The aggregate increase in interest income for the third quarter and nine month period was primarily due to higher interest income from our secured lending segment and other finer product income.
Interest expense for fiscal Q3, 2020 increased 19% to 5.1 million from 4.2 million in Q3 of last year.
Increasing interest expense was primarily related to our notes payable.
I really do somebody metal product financing arrangements.
And loan servicing fees, which were partially offset by a reduction in interest expense related to our trading credit facility.
Interest expense for the nine month period increased 23% to 15.3 million from 12.4 million in the same year ago period.
The increase in interest expenses, primarily related to our notes payable which became effective in September 2018, our liabilities on borrows metals product financing arrangement loan servicing fees and trading credit facility, partially offset by reduction in interest expense related to the.
Hold one credit facility, which we paid off in December 2018.
Net income for the third quarter fiscal 2020 totaled 11.3 million or $1.61 cents per diluted share. This was a significant improvement compared to net income up 990000, or 14 cents per diluted share in Q3 of last year.
Our income tax expense for the third quarter, 20, 21.8 million compared to 0.4 million in fiscal Q3 last year, our effective tax rate was 13.5% and 29.5% for the three months ended March 31st 2020 and.
2019, respectively.
The decrease in our effective tax rate, it's primarily due to the tax break benefit that the Terry backup our fiscal 2019 2018 net operating losses.
There's a nine month period net income totaled 12.7 million or $1.80 cents per diluted share. This compares to net income.
3 million for 43 cents per diluted share in the same year ago period.
Our income tax expense was 2.4 million and 1.1 million for the nine month ended March 31st 2020.
Thousand 19, respectively, our effective tax rate was 15.2% and 27% for the nine month ended March 31st 20 20019, respectively.
Difference in the effective tax rate was mainly due to the reason I previously mentioned.
Turning to our balance sheet.
At quarter end, we had $95.5 million at ash compared to 8.3 million at the end of fiscal year 2019.
$66 million of our cash balance at quarter end represented collateral for our asset backed securitization.
Our tangible net worth at the ended the quarter with 72.3 million up from 57.8 million at the end of fiscal year 2019.
Also during the quarter, we renewed our existing $270 million credit facility, which consists of $220 million revolving credit facility and that $5 million accordion feature.
That completes my financial summary, now I would like to turn the call over this or who will provide an update on our key performance not filler.
That's exactly.
Okay. He operational matters were strong across the board fourth quarter for the first one month because at this point to point, that's will become a more detailed.
He sold bother reselling ounces of gold easily which was up 19% from fourth quarter net debt at this point easily last year.
But clearly it's a one point boggling ultimate goal, which is up 4% come to think through last year on average selling price for <unk>.
The goal for both the remote the nine month period increased by 41% because the thing to his last year.
They do that typically strong quarter in terms of sport, we're still looking for 24.7 million out into <unk>.
He sees who stepped in particular.
54% Q3 last year.
Going forward for silver during the quarter increased just over 2%.
For the nine month period, equaled 60.7 million ounces of silver, which is up 10% versus last year.
However, so far just over for the money through increased by 10%.
It is important understand these recent market conditions, resulting in the expansion of previous spread is pretty solid gross profit gross profit percentage quarter.
Stock annuity or financial review the gross profit percentage increased 1.6 margins going into fiscal 2019% to 1.79% decreases. The 2020 uses good results relate primarily to the premiums earned over this bauxite.
The recent division is you know division play like a focus, especially during periods of volatility where the prices are trending higher or lower.
In terms of wholesale trading ticket volume represent the total number aquatic waters process. The 30 day you saw 50 like we said between 48006 seven maybe my ticket.
Our quarter increased 57% from Q3 last year.
First I love the fiscal 2014 trillion ticket volume about 20% to 150405 was 95000 monitored and Scislowska increased lottery ticket volume is indicative of increase for you guys seem to be a greater utilization of our troops portal in the higher demand is very simple.
You can you 24.
The four key metric, we close evaluate inventory turnover departed the talking to all divided by the average interest or where the relative to.
Before turning over to gradually how quickly does importers moves during the period.
Third quarter or is this what we feel ratio was 3.7, which is up 12% from 3.3 in the park where were down 20% from 4.6 bps last year.
For the first nine months. If this was 20 point well before the turnover ratio was 10.2 important reporting equal to last year. The decrease in our inventory turnover rate for the quarter and year to make good with both merely due to low volumes of ounces sold on for costs up compared to this day series last year.
Well I don't know secured long video the quarter totaled $420 and you've got 88% since our holder young 83% for Q3 of last year.
Our valuable loan portfolio totaled 49.6 million, which was down 67% to depart order that 55% from Q3 last year.
Moving over loans, increasing to widen pushes on prices decreased two thirds of declining interest.
It was the as the longer paid off during the quarter, where the markets with rocket a material drop in precious metals prices primarily silver.
We can be controlled operating executives, who did not incur in related loan.
That concludes my prepared remarks, and that sort of block over to Greg talk about the policy that makes me wonder you operational initiatives drugs like.
Thank you for.
Our record financial performance and I'm thinking corrupted operational execution through Q3 is the direct result of the investments we've made over the years to increase capacity and operational capabilities.
We benefited greatly not only from our expanded trading team, but also our 24 seven online portal, which allowed us to receive orders from approved customers. Even when made many major world commodity markets are close.
As I mentioned in my opening remarks, our team's commitment and effective contingency planning that allow has allowed us to maintain uninterrupted services to all of our customers throughout these unprecedented times.
This included keeping our logistic services operational and functioning effectively despite the many challenges in meeting the unprecedented levels of demand.
We also benefited greatly in the quarter from our majority stake in the Silvertowne Mint, which provided us with greater price stability as well as access to silver products, even when supplies in the market were spirits.
Our retail segment also experienced increased level of levels of demand and the cost optimization measures.
Then strategies, we implemented earlier in the year hope to drive profitability in recorded.
This performance gives us continued optimism about this segment's long term potential.
Looking ahead, our strategy remains unchanged, we're focused on driving profitable growth through increasing the volume of our business expanding our geographic presence and leveraging technology to further our competitive advantages.
With one of the most expensive product and service offerings in the industry.
We believe we're well positioned to continue to capitalize on the current market conditions, while continuing to increase market share and drive growth over the long term.
How are you please provide the appropriate instructions for queuing it.
Thank you.
He would like to ask a question. Please signal by pressing star one on your telephone keypad.
If you're using a speaker phone. Please make sure immune function is turned up to allow your cigna Trisha alright, our equipment again that is star one if you would like to ask a question and I'll pause just for a moment and hello, everyone an opportunity to signal for questions.
And we'll take our first question from Chris the Kite from singular research. Please go ahead Sir.
Uh huh.
Hi, Greg and for.
Just a question on Ah.
Maybe if you could shed some light I know you might have mentioned it.
The secured.
Loan.
Decrease there you know what what went on there are in.
Sure.
Yeah, well as we've said it it was a result of a flash crash and the price of silver.
And if you go back there was a a day a monday back in March where we had silver.
Touch $12 an ounce.
And as always when the price of silver.
Goes down dramatically in a very short period of time, we have a you know the result is is that the collaterals was less than the loans.
To be paid off where there needs to be viewed collateral more collateral brought in and in this case.
The the price drop happened.
Pretty direct pretty dramatically on a very you know within a few hours.
And we were we were we lost quite a few rooms.
Okay.
Okay, Oh, so I just wanted to sort of thing are you guys are feeling going into.
April and May wanted to be even know how how are you. How you how is the market.
Right now.
The market continues to be active.
As you as you know the overall market in equities and has risen dramatically in the last 30 days and that I certainly you know.
Caused the demand.
Weaken a little bit on our side I would say that the first two weeks of April hubs and had been quite good.
And we are you know we have seen us a little bit of a slowdown in the last few weeks, but.
Yeah, it's a very fluid situation.
It would be.
No I don't want to put QM too much emphasis on.
Which direction things are going on within our business is strong and things continue to operate as we would like them to.
And I believe that.
You know right now the world seems to be indicating that there's a lot of uncertainty going forward and that is generally good for us.
Okay.
Great, Thanks, Syed and Oh, well continue to watch.
Great. Thanks.
It'll take our next question that from Jamie Lynn Lake and please go head from Palm Valley capital.
Hey, good afternoon.
Yeah, I realize you could see below that Scotia, Mercado, which means a shift down and I believe there's still one of the authorized purposes.
So you expect that closer to that is true information to have a beneficial impact on your business.
[noise] bottom.
I think that there's going to be pluses and minuses to us I think when there's a bank the size of Scotia gets out of the market theres going to be some negative effects on liquidity in the market.
And that.
Likely to increase.
Some of the spreads the spreads are probably going to widen they're not the only one theres been a couple of others that have announced they're going to cut back on their precious metals.
So that.
That's probably the negative from on the plus five I think we do we have historically compete it a little bit with Scotia in a couple of our products.
So that could be a benefit to us.
As well as you know, there's a number very talented people on that team and and.
It was it theres a possibility that we might be able to pick up some cow and if it if it becomes available so.
They don't directly compete with us or were not a direct to customer of Scotia, So I would say.
Yes, we don't see him a major.
Major issue either way.
Okay and I had another question about the go loan book in.
No I understand kind of depending on if this.
Order, but.
I couldn't even with the convert back in 2016, we got a drop it wasn't really sharp.
What happened this quarter.
But how does it work for those borrowers and their likelihood of coming back you has hasn't had any progress just in the short videos for decline since the start to rebuild how does that typically work.
Yeah, I mean, you you hit the nail on the head I would say that this situation is very similar to what happened in 16.
In almost all aspects you had a drop in price as it relates to any remarks performance you had a situation where where we had our ABS than we had just closed RMBS. So we we didnt have cash indeed, U.S. as collateral and there's a replacement for the loans.
And that could have a negative impact then it'll have a negative impact now.
I think that.
The environment is significantly different today than it was back then.
Environment today is lending itself much more too.
In existing precious metals buyers purchasing more as well as new buyers.
Coming into the marketplace we've seen.
Significant materially increase a gold mine our retail segment.
Of new players and new customers coming into the market that Weve never talk to you before.
As well as Ah.
Our retail online.
Investments that we have.
Those businesses I've also seen a.
The dramatic increase in new customers.
Capacity number.
And the production was about four.
No no no we had been running at about 4 million.
I'm I'm, sorry, we we had been running.
And about 175000 announces a week.
We're currently running at about 500000 hours a week.
Okay.
Now if I read it or are you able to capture much so that premium over spot. There. It's this right now in the either the round circle you know the coins.
I mean I you can tell from our results that are on premium is certainly expanded.
But as it relates to what portion of the retail.
[noise] Mark up forgetting that would that would depend on whether it's a gold mine seo or the into retailer that we have an equity interesting.
So, but but but we.
We we certainly are getting more for silvertowne product and pretty much all of our products today as it relates to premium than we were getting pretty months ago.
Yeah, if I recall <unk> the premium on products.
<unk> was increasing but it really didn't increase a lot and still.
About mid March.
In a way in which the premium almost.
<unk>.
So again.
<unk>.
But it's just hard just <unk>.
<unk> your first quarter results only we're able to capture a fraction of that that over the fourth quarter.
I mean, I would answer it <unk>, yes, you are correct that the premiums on silver product we're.
Much higher in the last few weeks of Marge than they were in the first few weeks in January.
Although the the premiums.
In January didn't start to increase if you go back to.
Comment I made I believe I was asked the question.
This question on the last call and and if you recall I made mention of the fact that.
We did see some increases in January due to the conflicts with Iraq and this situation there and that so so this this increased and trendy and on this increased and volume didn't didn't start in January.
But you wouldn't be correct in in the.
The reaction really started getting going in the middle of March and if you. If you go back to.
Particularly.
Sunday Night, where that you know where where equities loyal first started to break down inequities has a major drop off that Sunday night in March was the prelude to the Monday. The next Monday, where we have the big drop in silver that causes the last of the loan alone. So.
That that action really did take place in you know in the middle of March which you know with.
Beneficial for us.
<unk>.
When I go on to Silvertowne retail website right now.
It suggests that any orders may take as long as six months pill and in fact erotic spot.
Of a lot of orders.
But you've read stuff production quite a bit.
That's not really a fair comparison, there is a company that we purchased the Silvertowne <unk> from in that company is Silvertowne L.L.P. and they operate a T.V. show and they operate a website that company and it's not.
Yeah that companies not affiliated other than that.
I know already ownership interest in the Silvertowne men. So what you're looking at is a retailer under the name of Silvertowne.
But not.
These silvertowne <unk> that.
That's not the case as it relates to you know if if our customer customers are binds silvertowne product right now for you know either depending on the product it could be immediate deliver.
<unk> or it could be you know two to three weeks.
Okay <unk>. Thank you.
I guess Medicare got T., I I'd like again, I'm not that familiar with the operation So the company, but with the reduction of alone.
<unk> with that that come about because of the customer paid off alone or did you simply take the collateral.
And it's English.
<unk>.
In general are remedy after a margin call is either to get more collateral from the customer to get cash from the customer or to liquidate the loan through a margin call not just similar to what would happen in a margin account with equity.
So you know in this case I would say there was a higher percentage of liquidations, just because of the fact that that there was so much going on and we were you know it was a fairly.
You know all all markets worth worrying kind of.
Crisis or a bit of a meltdown.
So because of the severity of it to you know the of a higher percentage of these loans were liquidated that maybe they were either.
They were the margin call was fulfilled with cats.
After more clever.
Oh, Okay Guy next question <unk>. Please go ahead.
Okay.
Four.
Hello, Hi match.
Okay.
Fantastic corridor.
Help me understand this applies a colon.
<unk>.
What you ball.
Oh get sold out sometimes.
Closing too.
<unk>.
Yes.
<unk>.
That's certainly a factor if you're talking about the sovereign men's.
<unk> have.
<unk>.
You know they've been shut down off and on for the last next week. So the so the supply of both gold and silver from the major sovereign men's has been interrupted by just not being opened or not being able to strike material. So you know specifically <unk>. The the U.S. man in West point in New York has.
Has been off and on open or closed for the last six five or six week.
Hmm.
<unk> Canadian men also has has been interrupted and their product blow has been.
In either zero or has been on.
Location are very limited supply.
And and that's just something we've had to work through the other you know.
Almost historical event and most that never happened before but the supply of gold bars into the comex exchange as well as as getting gold to the sovereign meant for them to use to strike coins as as the major disruptions and the spread and the premiums.
And the backwardation on gold, which which would be you can go back and research has been no husband didn't historical numbers off and on for the last four or five weeks. So you've had a combination of.
Minor shutting down in Switzerland in Europe, because as a couple of at 19.
Livery problems with Bill.
Short.
Sure Con futures contract.
Okay, and you had an inability for sovereign minutes to to get silver and gold through their facilities as well as to keep their employees safe and keep them open so.
From our perspective, we've been fortunate as we've talked about in the past. This situation, we've talked about many times and at times of disruption. The Silvertowne minutes has been able to keep supplying us with products and has been able to.
You know able to give it quickly to products that we need.
Products that we can we can supply our customers and and they've done a great job of selling that we don't strike goal that that's the Silvertowne men. So you know gold premiums have I've.
I've been up there and we've been somewhat reliant upon third parties.
Gold supplies.
Certainly on the silverside, we've been the beneficiary of you know there.
Arab delayed wrap up very quickly and get us more silver for traders.
You know.
So we moved close then.
Understanding you can't get Us <unk>.
Moving parts out there.
In general do we look at supply disruptions, and then spend sold out and going.
There's a website the V.T. listening to send them out of stock is that.
That's a positive say your business, because what you're going to him my.
Assumption will be at the premium this would go.
Oh just apply this can.
<unk>.
I looked at it.
Yes, but as you said, there's many components to it and the perfect storm.
You know, sometimes can turn into you know not a storm at all and it can be negative I think that you get it on the points that they go into.
How we'd price and what's the supply and.
Demand is but.
But as delivery times and.
Extend out into the future and as premiums right is that that has a significant negative effect on demand because customers just aren't willing to pay pay the premium and they're not really willing to to to put their money up to two.
To lock it up position if they can't get the physics.
Gold medal fairly quickly and remember from.
From just some of the online retailers that had been mentioned that we've talked about before out there.
They they created a a business model, where most of their customers are used to to placing an order sending their money and getting delivery of their product within two or three days that that has become a very efficient.
And.
Sorry.
Cost effective way for retail customers to buy small amounts of precious metals, whether it be a thousand or $10000 what ones.
Those premiums increase and once those delivery times push farther and farther forward and that there's uncertainty as to exactly what that products going to be you're going to see.
And see the gross starts at a little bit and you're just see the man's expensive.
And you know I would say that.
You know those are just.
Any challenges that we deal with you're trying to Christ's accordingly, trying to make sure we have plenty of product to deliver.
And you know just to make sure that we are doing everything we can keep our logistics.
Opening in place and our supply chain of metal in place because.
A sovereign men can break down in a number of ways. They can break down in the striking process. They can break down in the logistics of shifting the material out and they can break down in.
The Rob bars that are being supplied to them not being able to get to them efficiently. So you know you have a lot of component.
Your question like.
You know so far.
Everything has worked well for any mark and we've been able to.
You know take our our advantage in the marketplace.
The people a lot of customers happy.
Yeah.
Well again they call it thanks a lot.
Thank you ma'am.
[noise] at this time that concludes our question and answer session.
Trying to call back over to <unk> closing remarks.
Thank you Alley.
Thank you everyone for joining us on our call today.
You for your continued support and confidence in our mission, we wish all of you. The best in these difficult time and have a great after name.
<unk>.
That's why we conclude case <unk> I like nine eight A., Mike Safe Harbor statement that include important <unk> regarding forward looking statements made during this call.
During today's call we were at forward looking statements made regarding your tree then.
Payments that really aimed Mike future plans object is expectations performance event.
Yeah like our forward looking statements.
Within the meaning of the primary Securities Litigation Reform Act of 1995, and the Securities Exchange Act of 1934.
Men risks and and.
The international political climate.
Crazed competition for Amax higher marking services.
Which depressed pasting the failure on the company's business model to respond to changes in the market environment as anticipated.
General risks of doing business in their commodity market and other businesses economic financially and governmental rent as described in the company's public's killings, but the securities and Exchange Commission. So we're shed believe estimate expect intend anticipate for steep.
And and and way expression and <unk>.
I guess.
And if I say no that's forward looking statements, which speak only as of the date.
On which they remain.
Additionally, any statements related to future improved performance and estimates revenues and earnings per share our forward thinking Saint minutes.
The company under takes no obligation to publicly in upstate or read my as any forward looking statements.
Leaders are clashing not too please I'm getting reliant on forward looking statements finally, I would like to remind everyone that the recording of today's could well be available for replay via the link in the investors section of the company website. Thank you for joining us for a mikes earnings calls you may now disconnect.
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