Q1 2024 A-Mark Precious Metals Inc Earnings Call
Yeah.
Good afternoon, and welcome to a Mark precious metals conference call for the fiscal first quarter ended September 32023.
My name is Jenny and I will be your operator this afternoon before.
Before this call a mark issued its results for the fiscal first quarter 'twenty 'twenty four and a press release, which is available in the Investor Relations section of the company's website at Www Dot Hey, Mark Dot Com you can find the link to the Investor Relations section at the top of the homepage.
Joining us today for today's call I'll aim Mark CEO, Greg Roberts, President Thor, <unk> and CFO Kathleen Simpson Taylor.
Following their remarks, we will open the call to 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 the AME Ox website I would now like to turn.
Nicole over to a Mark CEO, Mr. Greg Roberts, Sir Please proceed.
Thank you Jenny and good afternoon to everyone. Thank you for joining on our call today.
As you can see our first quarter results demonstrate the strength and scalability of our fully integrated platform to generate profitable results even during slower market conditions.
Despite facing a less favorable macroeconomic environment and softened levels of demand compared to recent quarters, we still delivered $30 million plus of EBITDA and diluted earnings of 77 cents per share and continued to grow our direct to consumer customer base.
Consistent with our commitment to generate shareholder value. The company also repurchased a total of 171268 shares of our common stock for $5 million during the first quarter, bringing our total treasury stock to $14 8 million.
We continue to view our share repurchase program as an attractive investment opportunity for the company.
And another way to deliver value to our shareholders.
Finally, we amended our trading credit facility during the quarter, resulting in increased liquidity and the reclassification of debt to long term.
With that I will now turn the call over to our CFO Kathleen Simpson Taylor to walk you through our financials in more detail.
Then our president Thor <unk> will discuss our key operating metrics.
Afterwards, I will provide a further update on our business and growth strategy and welcome your questions Kathleen.
Thank you, Greg and good afternoon, everyone our.
Our revenues for fiscal Q1, 2024 increased 31% to $2 5 billion from $1 9 billion in Q1 of last year, excluding an increase of $660 1 million of forward sales revenues decreased $75 8 million or 5%.
It was due to a decrease in gold and silver ounces sold partially offset by higher average selling prices of gold and silver.
The DTC segment contributed 13% and 23% of consolidated revenue in fiscal Q1, 2024, and fiscal Q1 2023, respectively.
Revenue contributed by J N V represented 12% of the consolidated revenue for Q1 of 2024 compared to 20% in Q1 of last year.
Gross profit for fiscal Q1, 'twenty 'twenty, four decreased 36% to $49 4 million or $1, 99% of revenue from $76 6 million or 4.0% to 3% of revenue in Q1 of last year.
The decrease in gross profit was due to lower gross profit earned from both the wholesale sales and ancillary services and E. T C segment.
Gross profit contributed by the DTC segment represented 43% of the consolidated gross profit in fiscal Q1, 2024 compared to 55% in the same year ago period.
Gross profit contributed by J M. B represented 36% of the consolidated gross profit in fiscal Q1, 2024 compared to 48% in Q1 of last year.
SG&A expenses for fiscal Q1, 2024 increased 23% to $21 8 million from $17 8 million in Q1 of last year.
The increase was primarily due to an increase in consulting and professional fees of $2 million, an increase in compensation expense, including performance based accruals of $1 2 million higher advertising cost zero point $4 million, an increase in insurance costs of <unk> 3 million and an.
Increase in information technology costs zero point $2 million.
Depreciation and amortization expense for fiscal Q1, 2024 decreased 12% to $2 8 million from $3 2 million in Q1 of last year.
The decrease was primarily due to a zero point $5 million decrease in amortization of acquired intangibles related to J M D.
Interest income for fiscal Q1, 2024 increased 20% to $6 1 million from $5 1 million in Q1 of last year.
The aggregate increase in interest income was primarily due to an increase in other finance product income of <unk> 7 million and an increase in interest income earned by our secured lending segment of zero point $3 million.
Interest expense for fiscal Q1, 2024 increased 60% to $90 8 million from $6 1 million in Q1 of last fiscal year.
The increase in interest expense was primarily due to an increase of $3 2 million associated with our trading credit facility due to an increase in interest rates as well as increased borrowing.
And the Amcs notes.
Including amortization of debt issuance costs as well as an increase of zero point $5 million related to product financing arrangements.
Earnings from equity method investments in Q1, 2024 increased 1% to seven 1 million from $2 six 8 million in the same year ago quarter.
Net income attributable to the company for the first quarter of fiscal 2024 totaled $18 8 million or <unk> 77 per diluted share.
This compares to net income attributable to the company of $45 1 million or $1 83 per diluted share in Q1 of last year.
Adjusted net income before provision for income taxes, and non-GAAP financial performance measure, which excludes acquisition expenses amortization and depreciation for Q1 fiscal 2024 totaled $26 8 million a decrease of 56%.
Third to $61 3 million in the same year ago quarter.
EBITDA.
non-GAAP liquidity measure for Q1 fiscal 2024 totaled 34 million and 51% decrease compared to $62 2 million in Q1 fiscal 2023.
Turning to our balance sheet at quarter end, we had $48 $2 million of cash compared to $39 $3 million of cash at the end of fiscal year 2023.
Our tangible net worth at the end of this quarter was $421 7 million down from $4 $36 8 million at the end of the prior fiscal year.
As Greg mentioned, we amended our trading credit facility during the quarter, resulting in increased liquidity and a reclassification of the debt to long term.
The facility now matures in September 2025, and provides for automatic annual rhythm.
A Mark's board of directors has continued to maintain the company's regular quarterly cash dividend program of <unk> 20 per common share. The most recent quarterly cash dividend was paid in October. It is expected that the next quarterly dividend will be paid in January 2020 for.
That completes my financial summary, now I will turn the call over to Thor, who will provide an update on our key operating metrics.
Sure.
Thank you Kathleen.
Looking at our key operating metrics for the first quarter of fiscal 2024, we sold 495000 ounces of gold in Q1 fiscal 2024, which was down 21% from Q1 of last year and down 39% from the prior quarter.
We sold 34 million ounces of silver in Q1 fiscal 2024, which was down 15% from Q1 of last year and down 33% from last quarter.
Number of new customers in the DTC segment, which is defined as the number of customers that are registered or set up a new account really purchased for the first time. During the period was 39100 in Q1 fiscal 2024, which was down 20% from Q1 of last year and down 57% from last quarter.
Approximately 32% of the new customers in the last quarter were attributable to the acquired customer lists aboolian back in June 2023.
The number of total customers in the DTC segment at the end of the first quarter was approximately $2 4 million, which was a 16% increase from the prior year new year over year increase in total customers was due to organic growth of our JV customer base as well as the acquired list of BG ASC and bullion.
In October of 2022, and June 2023, respectively.
DTC segment average order value, which represents the average dollar value of product ordered excluding accumulation program orders delivered to DTC segment customers. During Q1 fiscal 2024 with $2440, which is up 5% from Q1 fiscal 2023, but down <unk> 26.
When the prior quarter.
For the first fiscal quarter, our inventory turnover ratio was 2.5, which was a 7% decrease from $2 seven in Q1 of last year and a 22% decrease of $3 two in the prior quarter.
Finally, the number of secured loans at the end of September 803, a decrease of 26% from September 32022, and a decrease of 9% from the end of June.
The value of our loan portfolio at the end of September totaled $99 2 million a decrease of 1% from the end of last fiscal year.
That concludes my prepared remarks, I'll now turn it over to Greg for closing remarks, great. Thanks.
Thanks Thor.
[music].
I do apologize everybody I'm not too sure what that music is come from.
Just bear with me two seconds, while I try and sort of a technical issue out.
[music].
Yeah.
Is everything OK, Yeah, Yeah, I'm, sorry, where we had a problem with the phone where did it okay, where did I leave off okay. So we got to your closing remarks, but did you want me to run the Q&A and see if we have anybody can you give me.
Okay. So we will now open the floor for questions. If you would like to ask a question via the webcast. Please click on your ask question box on the left side of your screen type Your question and hit submit if you would like to ask a question via the phone lines. Please press star one on your phone key.
Pat now a confirmation tone will indicate your line is in the question. Keith You May Press Star two if you would like to remove your question from Nicky for anyone using speaker equipment. It may be necessary to pick up your handset before you push the keys. Please hold a moment, whilst we poll for questions.
Thank you. Your first question is coming from Lucas pipes from B Riley Securities Lucas Your line is live.
Thank you very much operator, good afternoon, everyone.
Hum.
Music at the beginning was better than than just now.
[laughter] workout well work on that is if there's a particular type of genre. You'd appreciate next time, let me know in advance.
No I appreciate that and Oh, Okay. I appreciate you taking my questions.
My first one is just on <unk>.
On the demand that you're seeing in the market today.
Obviously, there's been a lot of geopolitical uncertainty.
It seems like demand is firming up but it would be really good to kind of get your your take on the market and what might have changed since the September quarter. Thank you.
Sure.
Thank you.
We did indicate on our last call that we did see some some lower demand for product and as.
You have noted before we did see some compression of our premiums which did did affect our gross profit percentage.
I think that there has been.
And ongoing.
Sentiment in the marketplace that.
We're not.
Our consumers and our customers seem to be a bit unsure as to where precious metals prices are going.
Throughout the last 60 days, we've we've seen.
Some significant increase in the spot prices of gold and silver.
Okay.
Over also over the last 60 days, we've seen a number of dips.
That have resulted in significant increase in demand. So I think you have a combination of things going on here right now we definitely have.
Increased supply.
Particularly in silver.
And you combine that with some uncertainty and some choppy demand youre going to see some compression in premiums.
I think at the moment you have had gold twice over the last couple of weeks test.
New highs and get very near all time highs.
The all time high in gold in U S dollars is around $2060.
And we did we did test that number.
A couple of weeks ago.
I think there needs to be some conviction in the marketplace as to whether or not we're going to to see break breakout to new highs or if.
If we're going to see a retreat.
In the quarter, we're reporting right now we did see significant.
Activity and significant uptick in demand when we when we did see some dips in prices.
On spot prices so.
I think it's a combination, but I think that kind of.
I hope that answers your question.
That's helpful. Thanks, Thank you for that and then I apologize I didn't.
Didn't see the margins.
The wholesale and DTC segments.
Didn't you didn't have the time to dig further into that but can you can you remind us what the margins were in the first quarter and.
How how you would expect those to trend.
<unk> margins.
Here in the second quarter or not.
Not sure if you want to venture into longer kind of medium term outlook, but would appreciate your perspective on that.
I mean, I think in the quarter. We have just finished the one that we're reporting on right now.
We did see.
Uh huh.
Our lower gross margin.
And we.
We are.
As we enter this quarter.
We are.
We're experiencing some similar market conditions as we did last quarter. So.
But I would say.
From a positive note I I believe the company is continuing to outperform the market conditions, and I think that where.
We're investing in the business, we're growing the business and we're seeing the results that we would expect in the market conditions.
I think that as I look forward.
They're to me and in doing this for the last 40 years.
I do see a number of macro.
Issues.
Continuing to pile up that I believe would be favorable to our business, whether they materialize or not or how they have an effect on our business.
My Crystal ball isn't quite that clear, but I do like the way things are setting up right now.
But we are going to need to see a pickup in demand and obviously you can see from the spectacular results, we had last fiscal year and particularly the results we had in.
In Q1 of last fiscal year, and Q4 of last fiscal year the company when given the opportunity.
We will perform and has a very high ceiling on what performance can be but as it relates to micromanaging, what's going on this quarter and you know exactly what's what's happening today or tomorrow or next week.
As we have said before our business is very volatile.
Up every day and look at the news and look at the price of oil and the price of silver.
And Theres a lot of things that go into whether we're going to have a busy day or a busy week and.
Trying to identify those days in the future.
Can be challenging.
Thanks. Thank you so much Greg and I'll try to squeeze one last one Ed.
In terms of the buybacks.
Is that more opportunistic or is there something to read into in terms of.
Where are your stock where you see your stock trading of use IV opportunities in M&A.
Thank you.
I mean, I think we've talked a little bit about it before I think nothing has changed.
I look at our business and I look at our balance sheet and I look at what it takes to run our business I look at our liquidity our bank lines.
A number of different factors contribute to the decision, making as to how we allocate capital.
We highlighted it in this press release that we did sign and enter into a new agreement with our lenders.
That agreement I believe was a lot of hard work by Thor and Kathleen.
With our great partners CIBC.
And the result of the new credit facility.
Moving to two years committed move.
Moving to long term debt.
As well as increasing our flexibility as it relates to how we're going to deploy capital.
Was a big win for a market and I don't want to minimize that it was a lot of hard work and we're very thankful and very appreciative of our partners in.
In the Bank group.
As we look at.
The stock buyback in particular.
To me, it's just a.
It's like any other trade we do.
Where is our capital best allocated to to return the best result for our shareholders and that's something that I focus on all the time as.
As we look at opportunities whether it would be.
Capital expenditures, whether it'd be holding inventory, whether it be acquisitions or whether it be stock buybacks.
I view this in the board so the board and I are very well aligned on this that we're looking for whatever the best return is.
As for the shareholders and.
I believe that at the moment.
The stock offers to me a better opportunity.
And maybe it did.
A few months ago. So I think certainly the market cap of the company as it relates to our tangible net worth in our book value.
As well as.
Inventory or M&A opportunities.
They're all factors.
And obviously as.
Buying back stock in my in my assessment, if I believe buying back stock.
A few years from now is going to be the best investment and the best way to deploy our capital we will do that if we believe an M&A opportunity is going to is going to return a better ROI.
ROI, we're going to look at the M&A opportunity and if we need to expand our minutes or we need to expand our storage or we need to inventory more product, we're going to do that so you know.
To me, it's it's something I do every day.
I don't believe that there is a playbook for it that every.
Every opportunity and every decision is easily defined it's a little bit of experience and got in.
That's what I do.
So.
I hope that answered your question.
It was very helpful and I appreciate that approach it and thank you for that detail and best of luck.
Thank you very much. Your next question is coming from Tom Forte of D. A Davidson Tom Your line is life.
Great. Thank you Greg So I have two questions I'll ask them both at the same time.
Can you talk about it would it be too strong a statement.
Say that 70 cents a quarter and a GAAP earnings is a current low for the business as configured the second part for that one is what is it about the way that you've.
Put together the business right now that enabled you to generate such tremendous profitability.
In a soft quarter I feel like if I looked back in time, when there was soft quarter.
You, often actually lost money and didn't make money.
And then second maybe just at a high level can you compare how the core customer is responding to the Israel Hamas conflicts or.
The government shutdown you know news that came out at the end of September.
Maybe how that compares with you know the debt.
Debt ceiling or the Silicon Valley bank or the Russia, Ukraine.
High level comments, there I'd really appreciate it.
Sure Les.
Let's start with the first one.
I am thrilled and very optimistic that with the environment. We are counter we encountered in the first quarter, we made $30 million EBITDA, which we've just announced I think that is a is a.
Tremendous performance.
When you view.
The.
What we dealt with and what was what was going on as it relates to the supply and demand and the sentiment of our shareholder base.
I believe that we have as you pointed out.
Sometimes it's easy to lose perspective on performance and.
Being a public company I realize that that our investors are looking at a.
Year over year quarter over quarter.
But as you pointed out and you've been here for quite some time.
$30 million, if that is near or at or around our.
Low baseline of what we can do.
$75 million to $80 million is our upside.
I'm very proud of our employees and our management and our and thankful to our customers for everything they do too.
To cause these results so and I am.
I know in $5 million was a great quarter for us so.
I agree with what you're saying.
I believe that.
This business is built for the long term in this business is built to take advantage. When the opportunities are there to have outside outsized returns that you just don't see very often.
In any companies.
I love it and we're very good at what we do and when we have a slow quarter as I have said before and we've illustrated before there's a lot that goes on to building the business and keeping the business running and prepared to take advantage and take market share when the market gives us and <unk>.
Opportunity so for all we accomplished in Q1 and to make $30 million EBITDA very pleased with the performance.
I think that we are in a situation to kind of move towards your second.
<unk>.
I think we are facing.
Some very uncertain times.
As it relates to.
What's going on in the World and I don't think that you know.
Any CEO can get on the phone like this and talk about that they have any certainty as to how certain things that are going on in the world today are going to affect their business.
The Crystal ball does become a little fog year.
When you have events going on that are are really unprecedented.
And.
As I said, a little bit earlier in all the years I have done this.
There are a lot of factors.
Affecting the world economies right now that have really never come together at the same time.
To kind of dice.
Dissect your questions related to.
Individual events.
I think that.
In hindsight, it's very easy for me to understand and explain how certain events affected our business either positively or negatively.
Before the events happen, it's very difficult to.
Understand what's going to happen and when and then predict predict what will be the result of those events.
Three or actually you asked for specific questions and I will go.
What I think is chronologically, although I guess, we could debate, whether it's a direct directly chronological.
I believe that the.
War between Russia and Ukraine.
Had a.
A very.
Positive effect on our customer base and commodities and precious metals in general you add.
A country that was a big producer of oil of silver of platinum of a lot of commodities.
It had.
Basically unlimited capabilities as it relates to go.
Going to war.
Become involved with.
Ally of the United States that was very important to us from a trading perspective, as well as a geographic perspective, and I believe that.
The world reacted to that and hadn't really expected or seeing something like that before.
Before and for.
Four to five months.
<unk>.
Was the beneficiary of a great deal of uncertainty and how it would if how it would affect.
The U S economy.
I think that.
The Silicon Valley Bank crisis was unique amongst.
It was unique to anything I had ever really seen before where you had.
A top 15 bank in the country go under in a matter of days.
Uh huh.
Panic.
That came about in all financial institutions.
And you had a flight to quality and a withdrawal of assets from a number of very large financial institutions and that withdraw of assets.
A good percentage of it in our world flowed into our products.
So that event again was what.
<unk>.
Was a little more short lived but it was.
It was it was extreme and as I've talked about before all of these what I call earthquakes and the aftershocks that follow are all.
They all affect how how we do business and what results we can hope to accomplish.
The congressional shutdown.
The interest rate environment, which has taken a number of people by surprise.
The what appears to be backtracking and re trading by the fed on what Theyre actually going to do and what how they view inflation and how they view.
What theyre going to do about it interest rates to me. That's just that's a huge macro issue.
That affects huge markets way bigger than <unk> markets and it's not in my mind going away anytime soon and I think it paints a very positive picture.
For alternative currencies as.
As well as commodities and precious metals in particular I believe that issue is more long long term and ongoing and it's it's not doesn't have the same exact effect as what I would call out.
Silicon Valley Bank earthquake that is.
Is it is a big deal and then kind of wanes over time.
We'll see how.
The government shutdown affects our business.
I think that right.
Right now it seems to me that the markets are very skittish.
And I think that is.
It's in Sterling.
A little bit of <unk>.
Uncertainty and all investors and I think it's a very difficult time right now to to really predict.
How this is going to play out.
I love the business. We're in I think we are positioned tremendously to take advantage of whatever happens.
We're going into an election cycle, which.
Historically has has it.
Created.
Increased activity in our markets. So I look at that as something to keep an eye on.
And then lastly.
The Israeli.
Alastair any in conflict or the Israeli hammas conflict.
It's just a horrible situation it's just.
It's very difficult to watch it's very difficult for me to two.
Key wrap my arms around.
And I think that.
Our customers.
And probably shareholders are somewhat frozen and I see that event.
As a situation where people are.
Just not really focus so much on whats going on at the price of silver or gold and they're focused on.
No.
Things that were unimaginable 60 days ago.
And so I think that this particular conflict has probably slowed down.
Just a lot of decision, making as it relates to.
Hedging your equities or protecting against a deflation of the dollar or.
Different reasons why people look at our business and our products. So.
I think it has it has been a little bit of a kind.
Sit on your hands and do nothing the last since October 7th I believe it was so I think thats.
That's natural and I think it's understandable.
I think the.
For the next few months are going to be very interesting how this plays out but.
It's hard for me to speculate on how it's going to affect the economics of Hey, Mark.
Thank you, Greg very thoughtful I appreciate it.
Thank you very much. Your next question is coming from Andrew Scutt of Roth.
Andrew Your line is live.
Good afternoon, and thank you for taking my questions.
My first one kind of piggyback off the previous question. When you look at your DTC business now you're there.
Multiple avenues.
And storefronts you guys have and are broadening demographics of the customer base. I was just wondering if you could kind of dig deeper into the activity you saw there maybe where there's some pockets of customers that were weaker where there are others that may have provided some.
Countercyclical boost just anything you could provide there would be great.
I think first and foremost as I look at our numbers for this quarter and I look at.
Our.
Our premiums that were dealing with.
I think that the new customer acquisition.
Funnel that we get across all of the platforms are.
Robust.
I think our new client acquisition, and our ability to take customers from our competitors and our ability to.
Just onboard new customers.
Thought it was a great month for that considering the environment.
We did test on a number of occasions at JM volume in the last 90 days.
We've tested.
Really what price, we need to sell product at <unk>.
And we set goals for ourselves as to how many ounces, we might be able to sell if we were to test some lower premiums and some lower sale prices I believe that was.
Only possible in the current environment and I will say that.
Our customer base reacted better than I expected.
Had a number of promotions in the last 90 days, where I said, what I thought were some very high end goals for what would be expected.
Good results and I, thank the team at <unk> and in the DTC segment.
They performed very well so I was very pleased with.
With what we were able to gain as it relates to knowledge and what I believe we gained is as it relates to new customers and taking market share from our competitors. So it was very pleased with that I think that.
Dzhambul in in particular is the.
The legal and our DTC segment their.
<unk> have.
Have been astronomical.
In previous quarters as you can see they at times contributed <unk>.
60% of our gross profit so JM Boeing in particular, it was a very high bar for them too.
Two to match or to keep up with and we are we did see.
Slower result, in this quarter, which which we will report.
I think that a couple of things.
On the positive note.
Some of the smaller platforms and brands that we acquired over the last 12 months to 18 months.
<unk> in particular.
We saw some.
Some increased demand at very high average order value this last quarter from customers on that platform.
Numbers that we really hadn't seen.
In the diligence before we bought them and I.
I attribute that to Rob and his team at <unk> as it relates to their marketing and they're taking over of that website. So.
Definitely a positive on that particular platform from what we're seeing.
We've also seen a shift too.
A number of orders that are very large.
From a dollar perspective and are concentrated in gold over the last 90 days and we have seen a bit of a shift in our market.
Mix or product mix moving over to gold from silver, which which is reflected in our results and that the gold is.
Usually <unk>.
Slightly lower margin for us than silver.
And we attribute that.
And those orders those very large orders, we think that is very healthy in that.
It relates to some large customers that are placing big orders. So so overall I thought all of our platforms did very well.
I think JM had a very high bar so in looking at the results.
It feels like maybe they underperformed.
But in the environment, we're in I feel like all of our DTC.
Brands did very well considering the environment.
That's great to hear you're finding a way.
Waste to navigate.
The weaker environment. My second one for me is just on the two minutes could you just comment on the production out of the men's in the quarter and maybe if you.
Yeah.
The waning demand would it change your thought process on production rates moving forward.
Yeah, I think that the.
The men's have done very well the men's have navigated managing.
Expectations and what can be.
Expected in the current environment I can say that.
I think they have really outperformed and have been very nimble and flexible in what they produce and I think one of the beauties in positive takeaways.
That I see in our business for the next 10 years is our ability to shift production in a week to the products that we can sell.
And I think we have been very fortunate that Jamie its silver town and Tom power at the Sunshine men and Jason at Sunshine that runs things for Tom.
They've been very very good at shift.
Shifting products daily.
And we are able to.
Pivot to whatever we can sell and.
We've been very fortunate.
Over the last three to four months.
That we've had a very good demand for larger sized silver bars, and we've been able to pick up our production and shifted to that product that we can sell which just again keeps us nimble and keeps us ready to take advantage of.
When when and if we need to shift back to one ounce silver products that.
That maybe are a little less in favor at the moment, but I can't say enough about.
The employees management at the minutes keeping.
Keeping everybody busy.
Managing the production.
And cutting back on over time and watching their expenses.
And it's just it was a very good job this quarter by our mens.
Great well I appreciate the detail on that thanks again for taking my questions sure.
Your next question is coming from Greg <unk> of Northland Securities. Your line is nice.
Hi, good afternoon, Greg to learn and Kathleen Thanks for taking the questions.
I think I apologize that I missed it but.
Did you kind of did you see more or less margin compression with the wholesale business versus D to C. Wonder if you could just kind of speak to that.
I would say that we have seen more margin compression in the DTC.
I would say that.
We have we have.
We have tested lower premiums we have done a number of specials.
Over the last 90 days to really test the elasticity of the market to really find out what depth in product our competitors have as well as what.
Price and premium motivates our customers. So I would say in this quarter. We have experimented in I believe it has been a very positive outcome.
In that.
I think that I have a.
Really good idea today in this environment, what price I can sell.
1 million units of one ounce silver product for I don't know that.
I had that six months ago, because I don't think we had the same.
Hadn't really experienced this exact same environment in a while.
But we did a number of tests, where we set very large targets.
To see and to educate ourselves on what price and premium under what spot price conditions.
We could overachieve as it relates to units so I think.
We've tested that but with that we probably have seen a little more compression in gross margin.
And premium at the DTC side I think.
The wholesale side.
Has has been compressed, but probably not to the same extent as DTC.
Got it that's helpful. Greg.
And a little bit more of a broad question, but wanted to see if you could address kind of avenues for growth in DTC and you know how you can capture more of the market and I guess, along with that you know our inorganic opportunities more attractive in this kind of weaker macro environment.
I mean for me I don't want to leave any money on the table.
I mean, I look at our business as Sunshine and silver town.
Take thousand ounce silver bars that are mark wholesale traders by.
Our logistics gets the metal to the mens the myths create the product.
And that profit opportunity.
Those from that thousand ounce bar.
All the way up our integrated business to the end user and I think that.
We're.
We're unique and we are separated from our competition because we have a lot of competition in different parts of the value chain as it relates to our gross profit individually, but we really are the only fully integrated business.
That can.
Can take.
Thousand ounce bars off the exchange and turn them into one ounce silver rounds and get.
Our retail consumer to respond to if we want to be the cheapest we can be the cheapest I think the balance is.
Always testing testing quantity testing price testing product and and making sure at that DTC level that we are valuing new customers, which which we have a metric for that.
Valuing the sale.
And we're we are valuing.
How it affects the rest of our vertically integrated.
Integrated businesses.
And just how to maximize and sell the right amount of ounces at the right price all the while making sure we're keeping our new customer count up because we were fully committed to that new customer count whether it be organic or whether it be through acquisitions.
And.
If we have most of the customers.
We're going to get most of the business, we're going to live through.
Different macroeconomic different environments different supply and demand imbalances either way, but if we have the customers.
And we make sure that we know how to motivate those customers and we have a good idea of what we can expect from them if we test them.
I feel like we don't really care, where we get the customers organically or through acquisition, we just want to get as much out of those customers as we can and if it's in an acquisition we want to get more of the wallet and more out of those customers. Then then the company that ran it when we acquired it the management or the or.
The company platform.
If if we're taking.
Customers from competitors, and we're gaining market share and we're adding new customers that way.
Those customers, maybe a little bit differently and again, we want to make sure if they have $100 to spend we're getting their $100.
And as it relates to geographic.
We continue to work very hard on opportunities that we see.
Out there geographically.
To bring in new customers, we work on how we're going to value those customers and how that affects how we deploy our capital in an acquisition.
And we are.
I believe the best in the business at analyzing opportunities and deciding where we're going to deploy our capital now obviously as I've talked about before.
In our current situation there is a lot of analysis that goes into capital deployment.
Whether it be stock buybacks, whether it would be dividends, whether it'd be special dividends, whether it would be.
M&A opportunities.
And we're very focused on as a management team.
Being able to pivot quickly and being able to take advantage of opportunities.
That will have the best ROI for our shareholders.
Myself included as one of the larger shareholders I'm Super committed to.
To what we're doing here and long term value and making.
Making the right decisions today that will be positive in the future.
And.
I think that the benefit we have which I have said before is when we faced some headwinds in the market.
And we have.
What many would look at it as a slow quarter.
30 million EBITDA is still fantastic and I would say that there are many millions of dollars that are potentially out there for us because our competitors are probably going to feel this slowdown more than we are because we have the best business in the industry.
We're going to also be offered.
Opportunities for M&A that.
We would hope will be.
Be better.
Better return on investment.
Equate.
Equations than maybe in a very hot market I think as I've talked about before we went through three out of four quarters last fiscal year were.
We were outperforming everybody, but all of our competitors were doing very well.
We were able to make outsized profits in that environment.
But it didn't bodes, particularly well for M&A on a large scale because I was very concerned about what would the business be worth if we did have a slowdown.
Right now we're in that period as you can see in this quarter and we are.
Taking a very close look at how a slow quarter.
FX valuation on potential acquisitions so.
To me, it's just opportunity I feel like we have great opportunity I feel like the business is operating at a very high level.
And so there's going to be a good ride.
I'm very much looking forward to what the next three or four years brings.
Makes sense I appreciate your thoughts thanks, Greg.
Thank you very much our last question comes from Si Jacobs of Jacobs asset management, sorry. Your line is now.
Hey, Greg how are you.
Hello, Sai how are you.
Okay.
Im doing well. Thanks, So I just wanted to get a run a little more with that last point about M&A, and then kind of tie it to the buyback.
Last quarter, you sounded pretty optimistic that there are some.
Attractive live things in your M&A pipeline.
You might even have mentioned one of them being.
An option to raise a minority stake to a higher level and then.
Organic things and then business was slowing at that time and you have mentioned the dynamic where like asking prices are.
Too high when business is good and <unk>.
Sellers become more motivated when business is bad.
If you can give us an update on what your pipeline looks like in that regard and then tie it to the fact that.
I couldn't help but notice that you bought back stock at an average price that indicated.
It happened right at the end of the quarter because thats. The only time stock was trading below 30.
So you kind of knew how the quarter was going.
And you bought stock there now the stock's lower.
Adam.
So just kind of juxtapose.
Even lower stock price, where you than where you were eager to buy it versus maybe even more attractive.
Opportunities to do accretive M&A.
Yeah.
All focus on what I talked about before we have we have disclosed and we have a.
Contractual option to increase our stake in silver gold Bull.
Company in Calgary that that is a very well run company. The founders are great. We appreciate all they do we think they run a really good business.
We have an option window that opens.
Two to take a controlling.
Controlling majority ownership I believe it opens in December.
I believe it's open for eight months.
It's it's very <unk>.
Specifically defined as to as to how that investment would be made and at what valuation.
We are assessing the performance of that business today, we understand that we negotiated this option to give us the flexibility to take advantage of the increased ownership when we felt it was the right.
Deal at the right time related to all of our other options you just mentioned.
And that ones.
It's pretty baked.
We're going to continue to look at the window of of of exercising we're going to continue to look at the economics of that deal and we're going to continue to look at the economics of all of the deals we're looking out including the buyback.
As you can imagine.
As our share price.
Reflects our performance or it reflects the sentiment of our shareholders.
Price goes lower buybacks become more attractive.
Because.
I believe the stock is on sale.
Have in my head and I always have in my head what <unk>.
Mark is worth.
I'm a trader by nature I have a very good idea of what I think the bid side isn't what they asked side is.
And one of the benefits of being public is that there are supply and demand imbalances, just like silver and gold where our stock becomes.
On sale.
So as I as I look at that and I look at what I think my asked prices.
I can have a very clear picture of what I think the return on investment is if I buy stock at $30 29, 28 to $27 26, and it goes into my.
Internal calculations as to where our each dollar of capital should be deployed so if I thought the stock was a great deal at 28 or 29, I think the stock is a better deal at 27.
And we will act accordingly.
As it relates to.
M&A and acquisitions.
I tell people that a market's priced every hour during trading sessions five days a week.
You have a mark is what it is right now it's trading at a certain multiple.
Our balance sheet is huge our tangible net worth is huge our book value is $600 million approximately.
I tell people.
I can't buy you if I buy a mark at at a certain price and unfortunately, when I say I want a bayou.
I have two I don't always get the response that I want other people I I have to live with a mark being priced every day and have become very accustomed to that doesn't bother me at all.
But as it relates to what I'm going to pay on an acquisition.
As I tell people.
The deal has to make sense, otherwise why am I going to buy you if I can just buyback stock.
And by myself, which I have.
A great deal of confidence and control over so when those discussions happen in a slowing environment and somebody thinks their business is worth X and I tell them now it's worth 70% of X.
Two things are going to happen I mean, theyre going to be right or I'm going to be wrong.
And sometimes it takes a little while.
For the seller to.
Get their arms around what their business is worth.
So deals that.
May have looked good 456 months ago, they have to be repriced today, it's just the.
It's just the way the markets work.
And but I'm very patient I mean I have I.
I have deals that we.
We've looked at four to five times over the last three or four years.
Some of them We act on it.
And some of them were very patient and we will not act unless we get them at the right price.
So I am responsible for your money.
I take that responsibility very seriously.
And I feel like we've made very good decisions, how we invest your money.
And we're going to continue to do that.
Okay I agree Greg just one little definitional thing.
Is it disclosed or can you.
Clothes, specifically or generally.
This option you have to go to a majority.
A majority ownership in sooner golf balls, whatever it's called yogurt.
Can you say, how many roughly how many millions of dollars that would be cash or whether there'll be yeah, Paul and just trying to put it in context of <unk>.
You spent $5 million buying back stock your cash still built by $9 million. This.
Yes, yes.
I've got with them it was $50 million 40, some odd million dollars in cash what's the scope of that possible delay yeah I try for strategic reasons now I don't.
I don't know exactly what we said when we took the increased stake to get us to I think it's 47% or 49% I will say that the increase would take us to 75%.
And I don't.
Believe the size of that 25%.
It would not be normal course for us if we chose to do it.
It's certainly more than $5 million and if you go back in.
Look and you can see what we paid for the increase that we did make.
You can kind of figure it out there's there's probably enough information there I don't want to speak to it at the moment I just know that.
As it relates to the way I just described all the decisions in front of us at the moment.
We have been preparing.
In our own minds for the last six months knowing that this opportunity is there that this window is going to open and that we feel that.
That is a top priority because we believe we.
Value that option and we believe that we think the option is.
As an asset of of a mark and we will be prepared.
If we think.
It.
It's the right opportunity, we'll be prepared to take it I don't think the cost or the investment will.
It won't affect our decision, making I think we have enough liquidity to do that we have enough liquidity to pay our dividend we have enough liquidity to buy back stock when we think it's the right time.
And we have two or three other acquisitions, we're looking at right now so.
I feel like we're very well prepared to take advantage.
When others need to sell so I I like I like the hand, we have and I think we're playing the hand very well.
Greg.
That point just last part of the same question.
If you were to you said that that option is satellite fully baked if you were to exercise it and go over 50% and this could be a question for Kathleen possibly because it.
Account ethylene.
Kathleen standup Hy.
Come on over.
It is going to be for Catharine, because I know exactly what youre going to say, yes. It is.
Would it be a situation like Jan bullion, where by going over 50% does the price.
Of the option is it struck at a price that would cause you to need to write up.
Your minority investment and produce a GAAP earnings gain.
Yes.
And then you would also get I assume the other gap effect that you would just have a higher stream of income to the GAAP income statement, because you own more of it.
Yeah, you didn't look back at the <unk> acquisition, we had that Remeasurement gain right. So the book value of how we carry the investment versus what the implied enterprise value is when you would buy incremental piece. So that would most likely result in another re measurement gain.
Okay great.
I am assuming gasoline that we would then consolidate their financials and we did that if we're up to 75, we would be required to consolidate.
Okay.
Good site, that's awesome. Thanks, both of you.
Okay.
Thank you very much.
Well at this time that does conclude our question and answer session I would now like to turn the call back over to Mr. Roberts for his closing remarks.
Thank you Jenny once again I appreciate all the shareholder confidence a lot of you have been we've been talking for a very long time.
I really do appreciate your patience and your <unk>.
Support as we navigate it as we've said before.
Fairly volatile company as it relates to the Lumpiness and Choppiness of of our earnings and I think it's very important.
To look at our business in and look at it over a year or two years and again quarter to quarter. It can be a little bit.
And it would be a little bit difficult both to a blowout quarter or a slow quarter. So I think it's.
It's great that everybody is over time as educated.
As learning the company and I. Thank you all for for that support I'd also like to thank again, our dedicated employees and all of their commitment to <unk> success.
And we look forward to keeping you apprised of <unk> progress in the future. Thank you very much Jenny take it away.
Thank you very much Greg before we conclude today's call I would like to provide a marks safe Harbor statement that includes important cautions regarding forward looking statements made during this call. During today's call forward looking statements made regarding future events statements that relate a marks future plans objectives expectations performed.
<unk> events and the like.
All forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, and the Securities Exchange Act of 19th at Stifel.
This includes statements regarding expectations with respect to the dividend declarations, the amount or timing of any future dividends feature macroeconomic conditions and demand for precious metal products and the company's ability to respond to effectively respond to changing economic.
Economic conditions future events risks and uncertainties individually in the aggregate could cause actual results to differ materially from those expressed or implied in these statements factors that could cause actual results to differ include the following the failure to execute the companys growth strategy, including the inability to identify suitable.
Our available acquisition or investment opportunities greater than anticipated costs incurred to execute this strategy changes in the current international political climate, which has favorably contributed to demand and volatility in the precious metals market potential adverse effects of the current problems in the national and global supply chains.
Increased competition for the Companys higher margin services, which could depress pricing the failure of the Companys business model to respond to changes in the market environment as anticipated changes in consumer demand and preferences for precious metal products generally potential negative effects.
Larry pressure.
Have on our business and ability of the company to expand capacity at silver Taubman. The failure of our invested companies to maintain or address the preferences of that customer base is general risking business and the political and governmental risks and other risk factors described in the Companys public filings with the Securities and Exchange Commission.
The company undertakes no obligation to publicly update or revise any forward looking statements. This is al cautioned not to place undue reliance on those forward looking statements. Finally, I would like to remind everyone that a recording of today's call will be available for replay via a link in the investors section of the company's website.
For joining us today for a month earnings call you may now disconnect.