Gold.com - Q1 2025

Transcript

Operator (participant)

Good afternoon, and welcome to the A-Mark Precious Metals conference call for the fiscal Q1 ended September 30th, 2024. My name is Matthew, and I'll be your operator this afternoon. Before this call, A-Mark issued its results for the fiscal Q1 2025 in a press release, which is available in the investor relations section of the company's website at www.amark.com. You can find the link in the investor relations section at the top of the homepage. Joining us for today's call are A-Mark CEO Greg Roberts, President Thor Gerdrum, and CFO Kathleen Simpson-Taylor. Following their remarks, we'll open the call for your questions.

Then, before we conclude the call, I'll provide the necessary cautions regarding the forward-looking statements made by management during this call. I'd like to remind everyone that this call is being recorded and will be made available for replay via a link available in the investor relations section of A-Mark's website. Now, I'd like to turn the call over to A-Mark CEO Mr. Greg Roberts. Sir, please proceed.

Greg Roberts (CEO)

Thank you, Matthew, and good afternoon, everyone. Our Q1 results reflect the continued strength of our fully integrated platform to deliver profitable results, even during slower market conditions. Despite facing a less favorable macroeconomic environment, including elevated precious metal prices and softened levels of demand, we delivered $0.37 per diluted share and generated almost $18 million in non-GAAP EBITDA. During the quarter, we amended our trading credit facility, extending its maturity to September 2026, providing us with the liquidity for our future capital needs. We also advanced our A-Mark Global Logistics facility expansion and logistics automation initiatives, which are expected to be completed in the next few months. We anticipate these measures will increase operational capacity and produce efficiencies and long-term cost savings.

We have also continued to make substantial progress towards establishing a trading office and DTC presence in Singapore and broadening our reach into the surrounding region. Finally, as previously announced, SilverTowne Mint recently acquired all the assets of Regency Mint Manufacturing, including its minting equipment and its customer list, further enhancing our minting capability and expanding our customer base. We believe these initiatives position A-Mark for future success as we continue to grow and expand our business. Now, I will turn the call over to our CFO, Kathleen Simpson-Taylor, who will provide a more detailed overview of our financial performance. Then, our President, Thor Gerdrum, will discuss our key operating metrics. Finally, I will provide further insights into our business and growth strategy. Kathleen?

Kathleen Simpson Taylor (CFO)

Thank you, Greg, and good afternoon, everyone. Our revenues for fiscal Q1 2025 increased 9% to $2.72 billion from $2.48 billion in Q1 of last year. Excluding an increase of $217.4 million of forward sales, our revenues increased $13.1 million, or 0.9%, which was due to higher average selling prices of gold and silver, partially offset by a decrease in gold and silver ounces sold. The DTC segment contributed 18% and 13% of the consolidated revenue in fiscal Q1 2025 and fiscal Q1 2024, respectively. Revenue contributed by JMB represented 11% of the consolidated revenues for fiscal Q1 of 2025, compared to 12% in Q1 of last year. Gross profit for fiscal Q1 2025 decreased 12% to $43.4 million, or 1.6% of revenue from $49.4 million, or 1.99% of revenue in Q1 of last year.

The decrease in gross profit was due to lower gross profits earned from the wholesale sales and ancillary services segment, partially offset by an increase in gross profits earned by the direct-to-consumer segment. Gross profit contributed by the direct-to-consumer segment represented 54% of the consolidated gross profit in fiscal Q1 2025, compared to 43% in the same year-ago period. Gross profit contributed by JMB represented 37% of the consolidated gross profit in fiscal Q1 2025, compared to 36% in Q1 of last year. SG&A expenses for fiscal Q1 2025 increased 22% to $26.6 million from $21.8 million in Q1 of last year.

The increase was primarily due to an increase in compensation expense, including performance-based accruals of $2.6 million, higher advertising costs of $0.7 million, an increase in consulting and professional fees of $0.2 million, an increase in information technology costs of $0.2 million, and an increase in insurance costs of $0.2 million. SG&A expenses for the three months ended September 30th, 2024, include $5.3 million of expenses incurred by LPM and SGB, our recently consolidated subsidiaries, which were not included in our prior year Q1 results. Depreciation and amortization expense for fiscal Q1 2025 increased 69% to $4.7 million from $2.8 million in Q1 of last year. The increase was primarily due to an increase in amortization expense of $2.2 million related to intangible assets acquired through our acquisition of LPM and our acquisition of a controlling interest in SGB.

This was partially offset by a decrease in JMB intangible asset amortization of $0.5 million. Interest income for fiscal Q1 2025 increased 16% to $7.1 million from $6.1 million in Q1 of last year. The increase in interest income was primarily due to an increase in other finance product income of $0.6 million and an increase in interest income earned by our secured lending segment of $0.3 million. Interest expense for fiscal Q1 2025 increased 2% to $10 million from $9.8 million in Q1 of last fiscal year. The increase in interest expense was primarily due to an increase of $0.7 million associated with our trading credit facility due to increased borrowings, as well as an increase in interest rates, and an increase of $0.7 million related to product financing arrangements.

This was partially offset by a decrease of $1.4 million related to the AMCF notes, including amortization of debt issuance costs due to their repayment in December 2023. Earnings from equity method investments in fiscal Q1 2025 decreased 79% to $0.6 million from $2.7 million in the same year-ago quarter. The decrease was due to decreased earnings of our equity method investees. Net income attributable to the company for the Q1 of fiscal 2025 totaled $9 million, or $0.37 per diluted share. This compares to net income attributable to the company of $18.8 million, or $0.77 per diluted share in Q1 of last year.

Adjusted net income before provision for income taxes, a non-GAAP financial measure which excludes depreciation, amortization, acquisition costs, and contingent consideration fair value adjustments for fiscal Q1 2025, totaled $14.8 million, a decrease of 45% compared to $26.8 million in the same year-ago quarter. EBITDA, a non-GAAP liquidity measure for fiscal Q1 2025, totaled $17.8 million, a 41% decrease compared to $30.4 million in Q1 of last year. Turning to our balance sheet, at quarter end, we had $46.9 million of cash compared to $48.6 million at June 30th, 2024. Our tangible net worth, excluding non-controlling interest at the end of the quarter, was $313.3 million, up from $306 million at June 30th, 2024.

As Greg mentioned, we executed an extension of our primary credit facility, which provides $422.5 million in committed lines now through September 2026, providing the company with stable, long-term access to capital for the business. This facility, in conjunction with our repo lines and lease facilities, provides the company with a diversified portfolio of liquidity tools going forward. A-Mark's board of directors has continued to maintain the company's regular quarterly cash dividend program of $0.20 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 2025. That completes my financial summary. Now, I will turn the call over to Thor, who will provide an update on our key operating metrics. Thor?

Thor Gjerdrum (President)

Thank you, Kathleen. Looking at our key operating metrics for the Q1 of fiscal 2025, we sold 398,000 ounces of gold in Q1 fiscal 2025, which was down 20% from Q1 of last year and down 11% from the prior quarter. We sold 20.4 million ounces of silver in Q1 fiscal 2025, which was down 33% from Q1 of last year and down 20% from last year. The number of new customers in the DTC segment, which is defined as the number of customers that have registered or set up a new account or made a purchase for the first time during the period, was 55,300 in Q1 fiscal 2025, which was up 41% from Q1 of last year and down 90% from last quarter. Approximately 92% of the new customers from the last quarter were attributable to the acquisition of a controlling interest in SGB.

The number of total customers in the DTC segment at the end of the Q1 was approximately 3.1 million, which was a 31% increase from prior year. The year-over-year increase in total customers was due to the organic growth of our JMB customer base, as well as the acquisition of a controlling interest in SGB. The DTC segment average order value, which represents the average dollar value of third-party product orders, excluding accumulation program orders delivered to DTC segment customers during Q1 fiscal 2025, was $2,967, which was up 22% from Q1 fiscal 2024 and up 3% from the prior quarter. For the fiscal Q1, our inventory turnover ratio was 2.3, which was an 8% decrease from 2.5 in Q1 of last year and comparable with the prior quarter.

Finally, the number of secured loans at the end of September totaled 562, a decrease of 30% from September 30, 2023, and a decrease of 4% from the end of June 2024. The dollar value of our loan portfolio at the end of September totaled $101.9 million, a decrease of 10% from June 30, 2024. That concludes my prepared remarks. I'll now turn it over to Greg for closing remarks. Greg?

Greg Roberts (CEO)

Thank you, Thor and Kathleen. A-Mark's fully integrated precious metals platform continues to demonstrate its ability to deliver profitable results even during slower market conditions. Looking ahead, we remain cautiously optimistic that the macro headwinds we face will begin to shift, leading to increased demand across both our wholesale and retail segments. We remain committed to pursuing opportunities that expand our market reach and deliver value to our shareholders over the long term. Operator?

Operator (participant)

Certainly. Everyone at this time will be conducting a question-and-answer session. If you have any questions or comments, please press Star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press Star 1 on your phone. Your first question is coming from Thomas Forte from Maxim Group. Your line is live.

Thomas Forte (Managing Director and Senior Consumer Internet Analyst)

Great, so first off. [crosstalk] Thank you, team. Congrats on your ability to once again generate profits in a challenging quarter. I'm going to ask two questions, and then I'm going to get back in the queue to give other people an opportunity. So Greg, the first question I had is, how should we think about the levers you can pull to stimulate demand when you have an environment? It seems like there's. It's pretty challenging because you have kind of two one-way trades now in gold and essentially in equities. But I do think that you do a lot in such an environment. So I'd like to hear some additional details on the levers you can pull when facing that.

Greg Roberts (CEO)

Yeah. I mean, I think we can increase our marketing expenses. We can use marketing to try to bring in new customers, which we've done. We can't really control how much they're going to spend or what their average order value is going to be. But we believe that when markets are slower, trying to get new customers is a great investment in the future. Throughout this quarter, we once again had kind of hit-and-miss weeks. We would have—we probably had two or three very exceptional weeks, particularly in August. And we were able to really capitalize when we saw an increase in demand. And we were very well positioned in our new customer counts, our profitability, our sales. We were able to pull some levers, as you say, that what we felt was able to take advantage when the market allowed us to do it.

What we haven't been able to do is sustain multiple weeks or months where we're seeing this increased demand. I will say that towards the end of September and through October, we did start to see a little bit of positive movement in the premiums. So some of the premiums and some of the products, not all of them but some of them, we did see some premium expansion to the positive. So we did feel we were in good shape there. We feel that in this quarter, our inventory and our buys and our sells, and we felt like we had a very good match there, and then, obviously, coming into the election yesterday, the last few weeks, there was activity that was good.

And then today, clearly, there was a risk-on movement back into equities, a little bit of price drop in the spot price of gold and silver, which traditionally should help with premiums as well as demand with a drop in price. So we'll have to see how that plays out and how the customer base responds. But for the most part, we still felt really good about almost $18 million in EBITDA and almost $15 million in adjusted net. And it was, for us, we felt like we continue to get as much as we can out of what the environment gives us. As I've said before, the good news is we clearly see that when we get a little bit of a shift from headwind to tailwind, the businesses all perform very well, albeit in shorter periods of time.

Thomas Forte (Managing Director and Senior Consumer Internet Analyst)

And then for my follow-up, and then I'll get back in the queue. So the longer-term question is, during periods like this, it seems like historically you've done an amazing job on the strategic M&A side to find assets attractively valued that have you then well-positioned for that next increase in demand. It sounds like you made an acquisition through the SilverTowne, but can you give your current thoughts on strategic M&A?

Greg Roberts (CEO)

I mean, I thought the SilverTowne acquisition was just great for us, really good timing for us with premiums low and profitability at the target was down a little. They were looking to—the sellers were looking to move out of the business and move into something else. So I believe that for us to really pick up an extra 20 million ounces a year of struck product, which is what we believe we will get out of this acquisition when we get all the equipment set up and working and really getting up to that 100 million mark, at SilverTowne Mint, if you include the cast bar products, that was just what we felt was just perfect timing and very good from a strategic standpoint. I will say in the last 30 days, we have really filled the funnel in things we're looking at on the M&A side.

We're cautiously optimistic that in the next 90 days, we're going to be able to do some acquisitions that we believe are very favorable for us. So we're very busy in that area right now to answer the question directly. And again, I believe the timing is very good for us. And we very much look forward to going through the process and trying to finish up a couple of these deals we've been looking at.

Thomas Forte (Managing Director and Senior Consumer Internet Analyst)

Great. Thank you. I'm going to get back in the queue.

Operator (participant)

Thank you. Your next question is coming from Michael Baker from D.A. Davidson. Your line is live.

Michael Baker (Managing Director and Senior Research Analyst)

Okay. Thanks. One of the last things, Greg, you said on your prepared remarks was something along the lines of looking ahead. You think the macro headwinds will begin to shift, leading to increased demand. What makes you say that? Does it have anything to do with the election? Is it one of the things you just said to answer Tom's question? You talked about gold and silver pricing coming down a little bit, and that's helping premiums. Is that what you're referring to? Or just why do the macro headwinds, which seem to have been against you for the last several quarters, why do you think that begins to shift?

Greg Roberts (CEO)

As we talked about on the last call, as we have gone through this quarter of continuing record gold spot prices in particular and silver trading at a price above $32 that we hadn't seen in a very long time, and as I talked about on the last call, when you go day after day after day and week after week after week of higher spot prices or world record spot prices, which is what we talk about around here, we're just going to buy back more product, and that's going to hurt our margins a little bit. It's going to hurt our premiums a little bit, and we talked about this on the last call.

When I said earlier that I believe that was shifting a little, up until today, we continued to see very high spot prices, but our percentage and our buybacks that we've been buying back or taking back in on the secondary market, it did seem to diminish a bit, and it did seem to wane. So I feel like a lot of that selling is behind us, and I believe we're very well positioned that we work through a lot of inventory, so we feel like we're very well positioned. When you get a drop in the spot price as we did today, I mean, that has historically changed sentiment a little bit on the buy side, so I believe that that leading up and then the drop in price today is what I was referencing.

Clearly, moving forward, we're going to have to see how the public responds and how things have gone. I do believe that for the first time in the last few weeks, we did see a little bit different attitude with the retail buyer. That for the first time in a while, there appeared to be some fear of missing out purchasing, and customers were buying the higher prices with a little more gusto. So we'll see. We'll see if that continues or if the drop in price triggers more buying or what happens. But generally, in a lower spot price environment, our premiums are going to expand a little bit. So that's what I was referring to.

Michael Baker (Managing Director and Senior Research Analyst)

Okay. Yeah. That makes sense. And by way of follow-up, any way you can sort of quantify or a little more detail on the ratio of what you were buying in versus what you were selling? I think in my notes, it's historically around 10% of your buying in what you're selling. And it got up to, I think, 30% last quarter, if my numbers are right. Or that's the quarter, the June quarter. What was it in the September quarter? How's that trending?

Greg Roberts (CEO)

Right. I think when I was referencing this before, we were looking more at weekly, week-over-week, and weekly numbers. So it would be possible that in the past, we may have had, at our DTC segment, there may have been a number close to 30% that we had bought back, and the 10% number in a week is a little more normalized. We did have a couple of real good weeks in the quarter where that ratio dropped down to 5%, so if you get some increased sales and you buy back the same amount, the percentage is going to go down, so that's not a revelation, but as I said, I mean, I think the basic feel that I have right now is that the selling of our retail customers is shifting a little bit more to the buy side, and the sales in general have slowed down. The kinds of products we're buying back have shifted a little bit. So cautiously optimistic, as I said.

Michael Baker (Managing Director and Senior Research Analyst)

Awesome. Thank you. Fair enough. I'll pass it on.

Greg Roberts (CEO)

Thank you.

Operator (participant)

Thank you. Once again, everyone, if you have any questions or comments, please press star, then one on your phone. Your next question is coming from Lucas Pipes from B. Riley. Your line is live.

Feather Sutherland (Analyst)

Thank you very much. This is actually Feather Sutherland asking a question on behalf of Lucas Pipes. Greg, I would like to follow up a little bit on the previous question, looking forward. You pretty well described your expectations for calendar Q4, but for 2025, once Trump gets into the office, based on your experience from his previous presidency, what would you expect from buyers and sellers' sentiment? Thank you.

Greg Roberts (CEO)

Yeah. I mean, it's very hard for me to predict what the political winds are going to create for our business. I think that historically, we've talked about very close contested elections are beneficial for us. This clearly was not contested, and it was a real referendum on a change of attitude. And clearly, what looks to be a shift in the Senate is something we haven't had or experienced in a while. So how the new administration manages taxes and how they administer the printing of money and where they're going to spend the money and what really does where really inflation kind of ends up, I think that's to be determined. And you may not see it till 2026, but from my viewpoint, our job here is just to manage whatever the markets throw at us. And I feel we're really good at that.

I feel like we can make money. We made money through a Biden administration. We made money historically in a Trump administration. From my viewpoint, as it relates to A-Mark's business, I wasn't particularly concerned about who won from a pure business standpoint. I felt like a lot of what was going to happen in the future was going to happen either way. And I think that we're in the precious metals business. We're in the hard asset business. And continued and unsustainable deficits and borrowing of money is likely to be good for our business. And we'll have to see how that plays out.

Feather Sutherland (Analyst)

Thank you very much for this. And in my second follow-up, maybe on this SG&A growth, quarter over quarter, if I remember correctly, is 22% up. And can you frame that up a little bit? Sorry if I missed. Is it related to the acquisitions and how we should look to these expenses going forward?

Greg Roberts (CEO)

Yeah. Yeah. I think if you listen to Kathleen and go back and look at her comments, I believe a little over $5 million of the SG&A increase was related to the new acquisitions, which is just brand new expenses we're bringing on. So I think if you back that out, I think our SG&A was fairly consistent.

Feather Sutherland (Analyst)

Gotcha. Thank you very much.

Greg Roberts (CEO)

Okay.

Operator (participant)

Thank you. Your next question is coming from Greg Gibas from Northland Securities. Your line is live.

Greg Gibas (Senior Research Analyst)

Great. Thanks for taking the questions. Appreciate the call, Greg, Kathleen, Thor. Wanted to follow up. I think if you could speak to maybe which markets you're looking at on the M&A side. I think you noted potentially something within the next 90 days or so. And just wanted to get a sense of where in terms of geographies you're leaning towards on that front.

Greg Roberts (CEO)

It's probably a little premature to focus on specifically where we're looking. I can just say that the deals we're looking at right now are broad, and they cover a number of parts of our business. And I haven't been this optimistic in a while. I think we've got some really good opportunities we're looking at, and I think we feel good about them. We feel good about the timing. We're always looking to increase our direct-to-consumer business as well as our wholesale business. And there's good reason for us here that we're going to be very busy, and we're optimistic we're going to be able to get at least one or two deals over the goal line.

Greg Gibas (Senior Research Analyst)

Got it. We'll look forward to updates there. Appreciate your commentary on kind of the gold and silver prices and then just kind of expectations into the election and after election. I guess I wanted to ask, more broadly speaking, if you're seeing any changes on the competitive front, whether it's within kind of traditional retail or anything you're seeing online, but would be great to kind of get your overall thoughts on any dynamics there.

Greg Roberts (CEO)

Yeah. I mean, we track, as I've said on previous calls, we track pretty closely our new customer data and our new customer numbers. We have picked up a lot of new clients and a lot of new buyers in the last 90-120 days, and we've also done a pretty good job of re-energizing and getting old clients who haven't bought for a while to buy, and so I believe that we're growing, and I believe our message to our retail customers is resonating, and I think there's good reason to believe we have the best retail customer base out there right now, at least in small fabricated silver and gold products, so very pleased with our DTC customer base. Wholesale continues to be a bit of a struggle just because of the premiums, and there's a lot of product out in the marketplace right now.

So you'll see our wholesale numbers lag a little bit here. But we have managed the inventory, and we believe we have a good mix of inventory right now. And when we have seen a real busy week or a home run kind of week we've seen in the last few months, we really were able to take advantage of it. So I think we're doing a good job of continuing to take market share and add new customers.

Greg Gibas (Senior Research Analyst)

Got it. That's helpful. Thanks, Greg.

Operator (participant)

Thank you. At this time, this concludes our question and answer session. I'd now like to turn the call back over to Mr. Roberts for his closing remarks.

Greg Roberts (CEO)

I'd like to thank our shareholders for joining the call today and for your ongoing support and investment in A-Mark. I also want to express my gratitude to all of our employees for their dedication and commitment to our success. We look forward to talking to you next quarter, if not before. Thank you.

Operator (participant)

Before we conclude today's call, I'd like to provide A-Mark's safe harbor statement that includes important cautions regarding forward-looking statements made during this call. During today's call, there were forward-looking statements made regarding future events. Statements that relate A-Mark's future plans, objectives, expectations, performance, events, and the like are forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995 and the Securities Exchange Act of 1934. Future events, risks, and uncertainties, individually or 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 company's growth strategy as planned, greater than anticipated costs incurred to execute the strategy, changes in the current domestic and international political climate, increased competition for A-Mark's higher margin service, which could depress pricing, the failure of the company's business model to respond to change in the market environment as anticipated, general risks of doing business in the commodity markets, and other business, economic, financial, and governmental risks as described in the company's public filings with the Securities and Exchange Commission. The words should, believe, estimate, expect, intend, anticipate, foresee, plan, and similar expressions and variations thereof identify such forward-looking statements which speak only as of the date of which they were made.

Additionally, any statements related to future improved performance and estimates of revenue and earnings per share are forward-looking statements.The company undertakes no obligation to publicly update or revise any forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements. Finally, I'd like to remind everyone that a recording of today's call will be available for replay via a link in the investor section of the company's website. Thank you for joining us today for A-Mark's earnings call. You may now disconnect.