DGSE Companies' CEO Discusses Q1 2013 Results - Earnings Call Transcript

May.14.13 | About: DGSE Companies, (DGSE)

Start Time: 16:30

End Time: 17:08

DGSE Companies, Inc. (NYSEMKT:DGSE)

Q1 2013 Earnings Conference Call

May 14, 2013, 16:30 PM ET

Executives

James J. Vierling - Chairman, CEO and President

C. Brett Burford - CFO

James D. Clem - COO

Jeff Stanlis - Partner and VP, Communications, Hayden IR

Analysts

Neal Feagans - Feagans Consulting

Sam Bergman - Bayberry Asset Management

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the DGSE Companies' First Quarter 2013 Financial Results Conference Call. During today's presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions). Today's conference is being recorded.

At this time, I would like to turn the conference over to Jeff Stanlis from Hayden IR. Please go ahead, sir.

Jeff Stanlis

Thank you and good day. The call today will be hosted by Mr. Jim Vierling, Chairman, Chief Executive Officer and President of DGSE Companies. Joining Jim are Mr. Brett Burford, the company's Chief Financial Officer; and Mr. Dusty Clem, Chief Operating Officer. Following management's discussions, there will be a formal Q&A session open to all participants on the call.

Before we get started, I'm going to review the Safe Harbor statement. Some of the information discussed in this call, particularly the revenue, store opening and operational targets and forward-looking business plans, are based on information as of today, May 14, 2013. These contain forward-looking statements that involve risks and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward-looking statements disclosure in the earnings press release issued today, as well as DGSE's SEC filings.

With that out of the way, I'd like to turn the call over to Jim Vierling, Chairman and CEO for opening comments. Jim, the floor is yours.

James J. Vierling

Thanks, Jeff. We're happy to announce that Hayden IR has been contained in our investor relations council. We believe the legacy issues are behind us and we've positioned our company for profitable growth, so the time is right to expand our investors' awareness efforts. We welcome the Hayden IR organization to our team.

Thanks everybody who have joined us for the 30th call today. After our prepared remarks, we look forward to answering your questions best we can. Let's go over the agenda for today's call. First, I'll start by giving a brief summary of the first quarter of 2013. Second, Brett Burford, our CFO will go over our financial results for the first quarter. Next, I'll give you an update of our 2013 goals and objectives and year-to-date progress. Finally, Brett, Dusty and I will be glad to take your questions.

We made a solid start in the first quarter of 2013 and we were finally able to fully focus on executing our strategic initiatives. I want to thank our newly restructured senior management teams and all the employees throughout the company for their continued focus on executing the day-to-day actions that are transforming the company. This was done against the backdrop of volatile macroeconomic environment as the price of gold continued to decrease during the first quarter.

Thanks to the expense side work we completed in the last nine months, we believe we are now positioned with a cost structure that will enable us to maintain profitability on an annual basis even at lower gold prices. Our [median] initiatives include a continued focus on rational expense reductions and improving operational efficiencies. We were successful on both fronts during Q1.

We decreased total expenses by nearly 10% or $560,000 compared to last year, even by recognizing $353,000 in incremental store level expenses, due to the company operating four additional stores this year compared to the same quarter last year. Our financial performance during the quarter was impacted by product mix. We have a higher mix of lower margin bullion sales and lower jewelry and scrap sales that carries higher margins, the result of lower total revenue and downward pressure on our gross margins. But even with the product mix challenge on lower gold prices, we remain profitable.

We expect incremental improvements in both metrics as we move through the year. In April, the company leased approximately 4,500 square feet of space at the headquarters of a strategic partner and majority shareholder, Elemetal, LLC. Elemetal is a multibillion dollar global leader in the precious metal industry. We are excited to work even more closely with this important partner, benefiting from Elemetal's industry expertise and strategic assistance.

All corporate operations including administrative, finance and wholesale personnel are now in the single national headquarters located in Dallas. The combined headquarters will centralize management and all the DGSE retail and Internet operations with the result of ongoing synergies throughout the company. We expect the system consolidation will improve efficiencies across all corporate departments, and we look forward to supporting a 35, soon to be 37 retail locations more effectively.

In summary, while revenues and gross margin decreased in the current challenging markets, we delivered operating income from continuing operations and as I mentioned before, positive net income for the quarter.

I will now turn the call over to Brett for a more in-depth look at first quarter financial results. Brett?

C. Brett Burford

Thanks, Jim. I'd like to add my welcome and thanks to all the investors on the call today, and now turning to the first quarter of 2013. In the quarter ended March 31, 2013, revenues decreased by 2.3 million or 6.9% to 30.5 million as compared to 32.8 million in the quarter ended March 31, 2012.

Revenue increases in our bullion segment and in our Fairchild wholesale watch business were offset by decreased sales for our jewelry, scrap and rare coin segments. In addition, revenue from discontinued operations for Superior Galleries was excluded in the amount of $0 and $2 million for the periods ended March 31, 2013 and 2012, respectively.

Gross profit decreased in the first quarter by 1.1 million to 5.6 million or 18.4% of revenue compared to 6.7 million or 20.5% of revenue in the prior-year quarter. The decrease in both revenue and gross margin was primarily due to the change in product mix, as Jim described earlier.

Selling, general and administrative expenses decreased by 559,000 or 10% to 5 million compared to 5.6 million in the prior-year quarter. Overall, this was accomplished by reducing administrative and corporate expenses by approximately 912,000 while redeploying approximately 353,000 of this to fund our four new stores through our managed introduction of 559,000.

In addition, the company incurred a 102,000 professional fees associated with the recent restatement and related legal matters. Depreciation and amortization increased by 40,000 or 26.5% in the quarter ended March 31, 2013, to 193,000 compared to 152,000 in the prior-year quarter. This increase was driven primarily by new assets related to store openings being placed into service.

The company reported income from continuing operations of 300,000 in the quarter ended March 31, 2013 compared to income from continuing operations of 897,000 in the prior-year quarter, a reduction of 597,000.

Our balance sheet remains strong. At March 31, we had cash and cash equivalents of $3.6 million compared to $4.9 million at December 31, 2012. Stockholder equity increased by 2.3% to 13.4 million at March 31, 2013 compared to 13.1 million at December 31, 2012. The company's current ratio was 2.4 to 1 which was unchanged from December 31, 2012. Working capital was 10.5 million at March 31, 2013 compared to 10.3 million at December 31, 2012.

Now, I'll turn it back over to Jim for some additional comments.

James J. Vierling

Thanks, Brett. In our fourth quarter 2012 financial release, we outlined DGSE Companies' outlook for 2013. As we are now in the second quarter, I would like to update you on the progress we are making against these initiatives.

First, let me discuss our expansion plans. As I mentioned on the last call, since 2011 we have opened four stores in three states, 34 stores in eight states. We have done this through self-funded organic store openings and by acquiring (inaudible) and we achieved this in perfect expansion without increasing our debt. I'm very pleased that we were able to fund these openings without going to the capital market. That speaks volumes about our ability to generate cash and reinvest it into the business.

This year, we are on track to expand our operations between 8 and 12 store openings, funded through internal cash flow in existing markets. I will note the changes in precious metal pricing will impact the pace of this expansion, in addition timing and volume based on various factors such as availability in good locations, lease negotiations and (inaudible) requirements.

As previously stated, three leases have been executed in Dallas, Atlanta and Charleston markets. Our stores in Cumming, Georgia near Atlanta opened last week. The other two stores will open late in the second quarter, but early in the third. In addition, we are in negotiations and close to securing two additional locations.

Finally, we will carefully consider closing underperforming stores in our effort to improve overall efficiencies and profitability. This may result in us closing up to three stores during 2013, we will redeploy resources from these stores including inventory, equivalents and a special advertising [dollars] to support locations also in our networks of a higher profit potential.

We are focused on primarily opening new stores in the regions where we already have an existing presence. This way, we can better leverage our advertising spend, driving incremental traffic to markets where we are already well recognized. As a result, at least two of these three new stores are expected to reach profitability within the first year of operations, far sooner than a new store in a brand new market.

In addition, as we close underperforming stores and add stores in strong markets where we have an established presence, we expect store level profitability to increase. At the time as we make progress in this effort, we expect to see improvement in our operating margins and these segments as we grow our revenue and better leverage our fixed costs. However, it's worth pointing out that bullion is the high revenue low margin business. Because of this, bullion will always have the disproportionate of impact on our total revenue and margins.

We continue to evaluate accretive acquisition opportunities because the precious metal market has been flat or down in the last year, a number of acquisition opportunities we are seeing have never been greater. As a result, our M&A pipelines is at its most or best levels in our history and we are carefully looking at opportunities that are accretive and will increase shareholder value. We will be opportunistic looking for the right business and the right regions at the right price. We'll also be selective in these acquisitions making sure they are good in the long term as well as the short term.

In addition, we continue to explore strategic business opportunities within our industry, our already strong and improving relationship with Elemetal, our strategic partner helps us in our efforts to identify and complete acquisitions and we believe this relationship will continue to benefit us both operationally and in our M&A efforts going forward.

With the recent move to the new headquarters, we were in a much better position to complete the reorganization of accounting, back office and management functionalities to support future growth. Brett and our COO, Dusty here are doing a superb job of streamlining and integrating all facets of the business as we know that this effort will allow us to support the 150 to 200 stores in the future.

Importantly, we hope to achieve our long-term [growth flows] through a combination of organic growth as well as accretive acquisitions and leveraging our strategic partnerships. The consolidation of our headquarters within the corporate space of our strategic partner, the largest shareholder Elemetal is giving us greater access and proximity to a senior leadership which will further enhance our ability to continue leveraging this relationship going forward.

As an example, we recently announced expanding our bullion products sourced from Elemetal. Many of the bullion products are considered the state-of-the-art and this program will allow 34 national locations that offer greater quantities of global silver bullion to our retail customers at market-leading prices. This expansion allows customers to take advantage of our immediate physical delivery of bullion at one of our convenient national locations at the very best price. This relationship is designed to enable DGSE to significantly expand our bullion business in 2013.

In summary, we expect 2013 to be a profitable year for us as we'll benefit from our deferred tax assets related to previous net operating losses and the conservative measures which are currently fully reserved on the balance sheet at 8.6 million, and as a result we do not expect to pay any federal tax on profits for years to come.

That concludes my prepared remarks. We would now like to open the call to take any questions you may have.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions). Our first question comes from the line of Neal Feagans with Feagans Consulting. Please go ahead.

Neal Feagans - Feagans Consulting

Hi, Jim

James J. Vierling

Hi, Neal. How are you doing?

Neal Feagans - Feagans Consulting

Good. So Jim, there was a lot of press coverage in most all the financial publications after the sharp selloff in gold six weeks ago about record levels of demand from retail, investors as well as funds for physical bullion. There were even a lot of references to competitors of yours actually selling out of gold coins and bars and so forth. Did you guys experience any significant uptick in business in those areas in your stores? And if so, could you maybe explain a little bit how that relationship with Elemetal facilitates you guys in high demand periods like that versus your competitors?

James J. Vierling

Yeah, Neal, I'm going to let Dusty answer that question. I think he can do a better job of it.

James D. Clem

Hi, Neal. Yeah, we did actually see a pretty significant increase in both the inquiries and the actual transactional activity on the bullion side. Elemetal was not immune to the kind of supply side concerned you saw on a lot of the press, and they and we did have a couple of weeks there where supply was a real issue. It was hard to get really anything out of any of the world's myths and even the private manufacturers like MTR, OPM, Elemetal, others had some issues. But the transactional activity was robust. We did see a significant uptick in activity and our delivery was probably delayed by, I don't know, 7 to 10 days, somewhere in that range, but we were able to work through that and we've seen bullion levels come back down now, more to a normalized state than they were maybe three, four weeks ago.

C. Brett Burford

But during that time, I will add that, we did a better job than anybody else. Our competitors were way behind and we were just a couple of days behind.

Neal Feagans - Feagans Consulting

So basically, even if Elemetal was running low on supply due to demand, am I correct in assuming that they have a choice to send over X amount of product to the DGS chain versus other nonaffiliated chains that the trucks are headed to your shops?

James J. Vierling

Yeah, I think that's a fair sentiment. We did get a little preferential treatment in the way that our bullion was delivered over our competing retail branches.

Neal Feagans - Feagans Consulting

Okay. And you guys have an online trading exchange as well, I mean what happened there during April and early May? In other words, was there also increased activity on your trading desk?

James J. Vierling

Yeah, significantly so. That U.S. bullion exchange side is what you're talking about and we did see significant upticks for basically 20 days in a row over our kind of historical norms.

Neal Feagans - Feagans Consulting

Okay. And I'll ask one more question, then get back in the queue. Maybe you could take just a minute and explain a little bit about how the DGSE model is set up to benefit from both increasing and decreasing bullion prices? In other words, in your last quarter, I think you said stagnant gold prices were a bit of a problem, but could you take a couple of minutes and explain how volatility is your friend, whether bullion prices are dropping $200 or $300 an ounce over a couple week period or rising, so people can get a good flavor for how you're benefiting from both sides of the market?

James D. Clem

Yeah, sure. We see, as you said, volatility really kind of as our friend and I think over time, it's good for our business because it creates fairly significant transactional activity like we saw last month. In general mills, I don't think as you know, but the larger moderate moves up in price, tend to increase our scrap and precious metal purchases. That's when people start digging into their jewelry boxes and selling us things and that includes bullion, but it's most effective for us for the scrap side. And large or moderate moves down in price or for sudden volatility downward increases our precious metal and bullion sales and that's what we saw last month. But frankly between the two choices, we're always going to root for an upward movement. Our scrap business is significantly more profitable to us. It's a higher margin business but we can be profitable both ways and obviously any movement is good for us. Slow or no movement over long periods of time really doesn't get anybody excited about doing a transaction one way or the other. So we like to see those moves up and down.

Neal Feagans - Feagans Consulting

Okay. And other than obviously having some inventory on hand, am I correct that in general you guys are never short the metal or long the metal, you're basically covering your transactions on a day-to-day basis, covering your scrap purchases on a day-to-day basis. So if there's a downward trend in gold, you're not caught in a losing position of any size?

James D. Clem

Yeah, so there's kind of two questions wrapped up, and this is Dusty again, but there's three ways we really fundamentally hedge our transactional activity. And one is through the use of traditional hedges, going through the COMEX market and generally that's through shorts, because just by virtue of our business, as you said, we hold inventory and we hold scrap that we purchased before it gets melted or sent off as jewelry into our stores and we need to use – we utilize short positions through COMEX. We also do price locks on sales to retail clients. So if somebody wants to come in and buy 27 kilo bars or something and we don't have that currently in stock, we can lock in the price and that effectively creates a short if we don't have that in inventory. And then the third kind of mechanism would be just price locks with bullion wholesalers and scrap refiners. So if we get to a point where we want to pre-sell or sell inventory that's in our hold or pre-hold on scrap or whatever the case maybe, we can do that. And all three of those effectively get to the point where we get a short position. So the thing to remember from most of our exposure here, especially for bullion, is that we don't hold that inventory for long periods of time. We have really fast turns. It's somewhere on the neighborhood of every two weeks and obviously volatility like last month when we accrete our turns and then long periods of stagnation will make those turns go longer. But two weeks is the average time we actually have with a piece of gold in our inventory.

Neal Feagans - Feagans Consulting

Okay. Thank you.

Operator

Thank you. (Operator Instructions). Our next question is from the line of Sam Bergman with Bayberry Asset Management. Please go ahead.

Sam Bergman - Bayberry Asset Management

Hi, Jim, Brett and Dusty. How are you?

James J. Vierling

Hi, Sam. Nice to hear from you.

Sam Bergman - Bayberry Asset Management

I'm glad you're doing a conference call with questions. I appreciate it. So I have a couple of questions. In terms of gold bullion sales, what percentage – is that broken out at all in terms of what percentage that is of the revenue from the quarter?

James J. Vierling

Brett will answer that one for you, Sam.

C. Brett Burford

The short answer, Sam, is that it is not. It's something the company has disclosed in the past and that we've had a lot of interest from shareholders like yourself to give that information again and we're looking at that. Quite honestly, part of it is actually the acquired [HBT], the growth stores. We've gone through a restatement last year. There's a fair amount of noise in those numbers that as we – a lot of things we're working towards now and sort of a very consistent approach to how we roll up to report the numbers and that would allow us, I think, to [add the comforts] and disclose that information. We don't have reportable segments from kind of a GAAP perspective, but we do hear the interest from shareholders and we're looking hard at that.

Sam Bergman - Bayberry Asset Management

Okay. In terms of M&A activity, have you found up to now before the price of gold dropped tremendously and then started to turn back that valuations for a retail store chain was a lot higher than you had expected to be, or you just haven't found the right company to purchase for other reasons?

James J. Vierling

Well, we're very – as I said, we're very selective here. We want to make sure that it's a long-term good play and not just accretive from day one. And some of these things we're looking at is strictly just the gold buying shops and that's all we have to offer and if there's some restrictions in their leases, that's all we can do as far as our uses. They're not as attractive and so we're just being very selective right now and making sure we pick the right one.

James D. Clem

I'm just going to kind of add to Jim's answer there. I think that in 2011, gold prices were an all-time high. It's a new [stock], a real proliferation of those types of stores. '12 was a little softer and I think that for industry-wide, probably '13 seem very soft. So there have been a lot of these sort of small less capitalized – kind of companies coming out of their woodwork wishing to sell and we're looking hard at that, but I think at the same time we're not interested in just being people's exit strategy. We are trying to find good operations in good markets with some (inaudible) and equity, things like that and obviously at the same time, we're looking for a bargain. So if we can put all that together, we will bring some acquisition (inaudible) but that's certainly our goal and we think there are some targets out there.

Sam Bergman - Bayberry Asset Management

And if there was an M&A that you would be able to do in the next six months, what kind of funds would you use or should we expect you to go – use share and stock or – because you don't have a lot on the balance sheet or would you expect Elemetal to participate in any acquisition that you find?

James J. Vierling

Well, we would look at both options. Obviously if it's accretive, immediately we feel like the stock would be used widely at that point. I know it's a little cheap right now and we'd obviously like the pace of things with $7 stock as opposed to the $5 stock. If it's accretive immediately, I think we will go that route but we also would be talking to Elemetal and bouncing the ideas off of them. So if they are a bank and we have $7.5 million credit line with them and we've only utilized 3.5 million, so we definitely would throw that out to them as well.

Sam Bergman - Bayberry Asset Management

And the last question I want to ask you is if we got to they're purchasing it on the open market and they were great supporters of the stock in the past and even when the stock reopens, they were excellent support for the stock but they seem to have walked away presently. Is that because there's some M&A activity going on or any other reasons why that's happened?

James J. Vierling

Well, unfortunately we get a lot of questions about why they do things and all I can tell you is we are not part of their management team and we are not part of their decision making. So why they do certain things I really do not know. I get asked that question a million different ways and I always come back to the reality of we don't make those decisions and we don't really know exactly why they do what they do. I know they are very aggressive and they're buying other companies as well out there and using their capital however they see fit.

James D. Clem

Elemetal owns MTR-Elemetal, the kind of combined group there. They own over 40% of our stock, they control over 50%. They support us in many, many ways as we've kind of outlined in our various disclosures and they have to buy stock. As I said, they haven't bought recently but at the same time – while they don't disclose their sort of launch and strategic plan, they've also (inaudible) pledged to be the [back spots] for this stock at any price, but we know that over time they've expressed their intent to increase their ownership and we expect that to be the case.

James J. Vierling

And now that we've moved into their buildings and we're talking to these guys on a regular basis and they're very supportive of what we're doing and we'd probably get a better feel for that.

Sam Bergman - Bayberry Asset Management

Thank you very much.

Operator

Thank you. (Operator Instructions). Our next question, it's a follow-up question from the line of Neal Feagans with Feagans Consulting. Please go ahead.

Neal Feagans - Feagans Consulting

Okay. Thanks. Jim, I'm going to take advantage of you here while I've got you.

James J. Vierling

No problem.

Neal Feagans - Feagans Consulting

I'm glad to see that you brought an IR firm on. Obviously that would have been probably not the best use of money up until now since you've got everything kind of lined out and a lot of the cleanup work as you put it is done. Could you take maybe just a couple of minutes and if we look out over the next six to nine months, could you tell us a little bit about what maybe your goals and ambitions are in terms of becoming more interactive with the financial community and if you've had the opportunity yet to talk a little bit about what Hayden has got planned in terms of getting out on the road, maybe some potential conference presentations, that type of thing? Just kind of a general overview of what you personally would like to see happen between now and Christmas?

James J. Vierling

Sure.

C. Brett Burford

Sam, this is Brett Burford – I'm sorry, Neal, apologies. This is Brett Burford, I'll kind of step in real quick. The relationship with Hayden is very new but we're extremely excited about working with them. They've been great so far. They've helped us through this quarterly process. This is our first time to work with them. And we've kind of laid down what the next year would look like, we don't have all the specifics yet, but clearly what they're trying to do is get us more engaged with the investment community and get more interest in the stock, get the message out there. We fully expect over the next 12 months that we'll be doing a variety of investor conferences, one-on-one meetings and we're looking at some of those main shows for kind of the small to mid cap stocks like ourselves. So we're looking at basically again increasing the profile accretion engagement of the company that (inaudible) obviously to drive up the liquidity and increase trading, get more people involved. And we still – I mean to be clear, the number one focus for us is to be sure that we have the results to support any message we are putting out there. And so we're primarily focused on cutting costs, opening stores and going our business but we do understand the importance of also engaging with the shareholders and the investment community and that's what we certainty believe that Hayden will help us to accomplish.

Neal Feagans - Feagans Consulting

Okay. And then on a different topic, I think awhile back you mentioned that you guys were starting your own jewelry manufacturing business with 40 plus or minus stores now and perhaps 140 a year or two from now. Obviously you've got a huge network or retail outlets. Could you comment just a little bit about how that in-house jewelry manufacturing business is going in the few stores you have it in? And is that an area where you all might want to make further acquisitions or expand to kind of increase your in-house line of product offerings?

James J. Vierling

Well, what we did initially is we kind of went out there and developed anything we thought had a possibility of selling and based on the amount of [diamonds] and the quantities and the sizes we had, we made decisions. We really didn't have a whole lot of sell-through – we had no sell-through data to prove it either gives out or not, if there was more on personal preference through our sales people and through only – the very good jewelry guy. And so with that information, now we're seeing the sell-through of those items and we're starting to lock in with some good stalls and once we lock in with those good stalls, we think we can be more effective and more profitable. And it's not an easy game going out there manufacturing jewelry. We have to do production all over the world, we have to make sure you get the gold, the right gold, we have to make sure we have the right size and shape and color of diamonds, but we're getting better and better at it and we do see as a potential to make an impact in the future. I don't know if that answers your question, but…

Neal Feagans - Feagans Consulting

No, no, it does. So in other words, is it not really a core focus area for M&A?

James J. Vierling

Are you talking about to go out to buy other companies that are…

Neal Feagans - Feagans Consulting

Well, because somehow just increase your in-house manufacturing capability. I don't mean on a big full scale basis, but with the number of outlets you have and the fact that jewelry is a high margin business and you've said that making your own is even higher margin, I was just curious with your retail footprint if you'd over time like to be making a larger and larger percentage of what's going on the display cases versus what it is that you're buying over-the-counter and deciding would be better off sold rather than scraped?

James D. Clem

This is Dusty. I think in general, the answer to that question is yes. We'd always love to be making more and making higher margins, but don't lose sight of the real reason we started this jewelry manufacturing process which is to get better margins for our diamond inventory. So, as you know, we purchased scrap all across the country or in our 35 locations and we're left with a byproduct of these diamonds. And some of them are low grade and just need to be sold off in bulk, others are better material. And at that point we really have two different options. We can go out into the wholesale market and get X or put some money with those manufactured jewelry and put them in the rings and bracelets and that kind of thing and get Y. And one of things we've seen here over the last several months is that the melee market is so strong.

James J. Vierling

Melee by the way is very small diamonds under 10 points and so it's not a common term, so I thought I would clarify…

James D. Clem

Thank you. Lose diamonds and bulk diamonds, thank you Jim, has been so strong. In many instances, it's better and more time efficient and more profitable for us to go to sell them into the wholesale or retail markets. But we want to be positioned either, as Jim said, through doing the kind of [legwork] now, to know what stalls are selling or getting that process down for manufacturing so if that flips on us again and bulk or wholesale or melee diamonds aren't quite so strong and we want to go back and (inaudible) some of the jewelry manufacturing, we can. It doesn't mean we've stopped. It just means our focus is making money on that byproduct of lose diamonds, not necessarily producing our own jewelry.

James J. Vierling

And we've found some pretty good partners that are manufacturing for us, sort of go in and buy something. They have that fixed cost long term. Unless it becomes very successful, it's not something I'm looking at doing until we prove that we can be very successful.

Neal Feagans - Feagans Consulting

Okay. Well, thanks for taking the questions and we'll look forward to the next call.

James J. Vierling

Okay. Thanks for calling Neal. I appreciate it.

Operator

Thank you. I'm showing no further questions at this time. I'd like to turn the conference back over for closing remarks.

James J. Vierling

Thanks for your time and attention today. We are confident that the long-term fundamentals of our business are strong and we are well positioned to take advantage of our current and new opportunities that continue to emerge. We look forward to our next call with you where we will discuss the second quarter 2013 operating and financial results. Have a great day. Thank you, all.

Operator

Thank you, sir. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.

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