A-Mark Precious Metals - Earnings Call - Q3 2021

Transcript

Speaker 0

Good afternoon, and welcome to A Mark Precious Metals Conference Call for the Fiscal Third Quarter ended 03/31/2021. My name is Ariel, and I will be your operator this afternoon. Before this call, A Mark issued its results for the fiscal third quarter twenty twenty one 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 to the Investor Relations section at the top of the homepage. Joining us for today's call are A Mark CEO, Greg Roberts President, Thor Jardim CFO, Kathleen Simpson, Taylor as well

M. Bullion's CEO, Michael Whitmire. 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 A Mark's website.

Now I would like to turn the conference over to A Mark's CEO, Mr. Greg Roberts. Please go ahead.

Speaker 1

Thank you very much. Hello, everyone, and thank you for joining our call today. I'd like to welcome all of our new shareholders as well as our previous existing shareholders to the call today. As you can see from our earnings release, the third quarter marked another period of record earnings for A Mark, boosted by strong market conditions and the closing of the J. M.

Bullion deal, our most significant acquisition ever. A Mark had the strongest quarter of financial performance in our history with J. M. Bullion contributing $8,500,000 of gross profit and $6,800,000 of pretax income in just the last twelve days of March. Our outperformance continues to demonstrate both the effectiveness of our vertically integrated platform and the inherent synergies of our complementary business segments.

This includes our expanded direct to consumer segment, our minting partnerships, logistic capabilities and strong customer relationships. Our expanded A Mark team has executed extremely well to capitalize on the market conditions that are currently driving precious metals volumes. In particular, the growing demand for silver and gold products from our wholesale and retail customers, coupled with tight supply, resulted in higher premium spreads in our Q3. These robust market dynamics allowed us to accomplish this outstanding financial performance, highlighted by $50,300,000 in net income, net of the onetime remeasurement gain of $26,300,000 related to the JMB acquisition. A Mark's results easily beat the guidance we issued at the February.

As many of you know, during the quarter, we also closed our public offering, increasing our common shares outstanding to 11,100,000.0. Now I'd like to turn the call over to Kathleen Simpson Taylor, our CFO, who will walk you through our financials in more detail. Then our President, Thor Jurgam, will discuss our KPIs. Afterwards, I will provide a further update on our three business segments and growth strategy. Kathleen?

Speaker 2

Thank you, Greg, and good afternoon to everyone. As Greg mentioned, we closed our purchase of JMB, acquiring the remaining 79.5% interest on March 19. As a result, our financial results for the three months ended 03/31/2021 included 68,400,000.0 of revenue and 6,800,000.0 of pretax income attributable to JMD's operations from 03/20/2021 through 03/31/2021. With that in mind, let us turn to our financial results for fiscal Q3 and the nine months of fiscal twenty twenty one. Our revenues for fiscal Q3 twenty twenty one increased 63% to 2,050,000,000 from $1,260,000,000 in Q3 of last year.

The increase in revenues was primarily attributable to an increase in the total amount of gold and silver ounces sold and higher average selling prices of gold and silver. For the nine month period, our revenues increased 43% to $5,430,000,000 from $3,800,000,000 in the same year ago period. The increase in revenues was primarily attributable to an increase in the total amount of gold and silver ounces sold and higher average selling prices of gold and silver. Gross profit for fiscal Q3 twenty twenty one increased 203% to $68,200,000 or 3.33% of revenue from $22,500,000 or 1.79% of revenue in Q3 of last year. The increase in gross profit was due to higher gross profits earned by our wholesale sales and ancillary services and direct to consumer segments.

The increase in gross margin percentage was mainly attributable to significantly wider premium spreads due to increased demand, higher trading profits, primarily due to increased volatility, and these were partially offset by the impact of higher forward sales. For the nine month period, our gross profit increased 216% to $123,100,000 or 2.27% of revenue from 38,900,000 or 1.03% of revenue in the same year ago period. The increase in gross profit was due to higher gross profits earned by our wholesale sales and ancillary services and direct to consumer segments. The increase in gross margin percentage was mainly attributable to significantly wider premium spreads due to increased demand, higher trading profits primarily due to increased volatility and lower forward sales. SG and A expenses for fiscal Q3 twenty twenty one increased 42% to 14,800,000.0 from 10,400,000.0 in q three of last year.

The increase in selling, general, and administrative expenses was primarily due to 2,200,000.0 of costs associated with our acquisition of JMB, an increase of 1,700,000.0 related to JMB's operations subsequent to the acquisition, of which $1,000,000 is attributable to amortization expense and an increase of $300,000 associated with Goldline's marketing activities. For the nine month period, our SG and A expenses increased 28% to $33,800,000 from $26,500,000 in the same year ago period. The increase in SG and A expenses was primarily due to $2,600,000 in costs associated with the J B acquisition, increases in compensation expense, including performance based accruals of $2,100,000 an increase of $1,700,000 related to JMV's operations subsequent to the acquisition, of which $1,000,000 is attributable to amortization expense increased insurance costs of 700,000.0 and an increase in computer software expense of 200,000.0. Interest income for fiscal q three twenty twenty one decreased 21% to 4,700,000.0 from $6,000,000 in Q3 of fiscal twenty twenty. The aggregate decrease in interest income was primarily due to lower interest income earned by our secured lending segment, which was partially offset by higher other finance product income.

For the nine month period, our interest income decreased 26% to 13,200,000.0 from 18,000,000 in the same year ago period. The aggregate decrease in interest income was primarily due to lower interest income earned by our Secured Lending segment, partially offset by higher other finance product income. Interest expense for fiscal Q3 twenty twenty one increased 6% to 5,300,000.0 from 5,100,000.0 in q three of last year. The increase was primarily driven by higher interest expense associated with product financing arrangements, partially offset by a reduction in loan servicing fees, lower interest and fees from liability on borrowed metals, and lower interest expense related to our trading credit facility. For the nine month period, our interest expense decreased 4% to 14,700,000.0 from 15,300,000.0 in the same year ago period.

The decrease in interest expense was primarily due to reductions in interest expense related to our trading credit facility and loan servicing fees, which was partially offset by increases in interest expense related to our product financing arrangements. For the third quarter of fiscal twenty twenty one, our net income attributable to the company totaled $76,600,000 or $8.84 per diluted share compared with net income of $11,300,000 or $1.61 per diluted share in Q3 of last year. Our diluted EPS for the quarter is based on the weighted average shares outstanding during the quarter, which totaled 8,700,000.0 shares and is not based on the 11,100,000.0 shares which were outstanding at the March. Net income attributable to the company for the three months ended 03/31/2021, included a $26,300,000 remeasurement gain on our pre existing equity interest in JMB in connection with its acquisition. Excluding the remeasurement gain, net income attributable to the company for the third quarter of fiscal twenty twenty one was $50,300,000 Net income attributable to the company also included 2,200,000.0 of nonrecurring costs associated with the acquisition of JMD.

For the nine month period, our net income attributable to the company totaled 108,600,000.0 or $13.61 per diluted share compared to net income of 12,700,000.0 or $1.8 per diluted share in the same year ago period. Our diluted EPS for the nine month period is based on the weighted average shares outstanding during the nine month period, which totaled 8,000,000 shares and is not based on the 11,100,000 shares outstanding at the March. Net income attributable to the company for the nine months ended 03/31/2021 included a $26,300,000 remeasurement gain on our pre existing equity interest in JMB in connection with its acquisition. Excluding the remeasurement gain, net income attributable to the company for the nine months ended 03/31/2021 was $82,300,000 Net income attributable to the company also included $2,600,000 of nonrecurring costs associated with the acquisition of JMB. Now turning to our balance sheet.

At quarter end, we had $38,800,000 of cash compared with $52,300,000 of cash at the end of fiscal year twenty twenty. Our tangible net worth at the end of the quarter was $110,500,000 up from $91,000,000 at the end of fiscal year twenty twenty. Our balance sheet now includes J and B and the related intangible assets and goodwill based on our preliminary purchase price accounting. We commenced the amortization of the acquired developed technology and customer relationships intangible assets during March. This amortization will be an ongoing non cash expense, which will be significant commencing in our fiscal fourth quarter.

That completes my financial summary. Now I will turn the call over to Thor, who will provide an update on our key performance metrics. Thor?

Speaker 3

Thank you, Kathleen. Looking at our key operational metrics with the quarter and nine months of 2021, We sold 771,000 ounces of gold in Q3, which is an increase of 52% from Q3 of last year and an increase of 61% from the prior quarter. For the nine month period, we sold 1,970,000 ounces of gold, which is up 30% from the same period last year. We sold 33,100,000 ounces of silver in Q3, which is up 29 from Q3 of last year and up 56% from last quarter. For the nine month period, we sold 78,600,000 ounces of silver, which is up 29% from the same period last year.

Wholesale trading ticket volume, which represents the total number of product orders processed by our trading desk, increased 51% to 44,966 tickets from the prior quarter, but decreased 8% from Q3 of last year. For the nine month period, wholesale sales trading ticket volume decreased 5% to 110,104 tickets compared to the same year ago period. While our ticket volume decreased compared to prior year periods, our average order size per ticket increased versus the comparable periods driving an increase in overall revenue. The key metric we evaluate is inventory turnover, which is a measure of how quickly inventory has moved during the period. For the third quarter, our inventory turnover ratio was 3.7, which is up 3% from 3.6 in the prior quarter and is consistent with the inventory turnover ratio in Q3 of last year.

For the nine month period, our inventory turnover ratio was 12%, which is up 13% from 10.6% in the same year ago period. Finally, the number of secured loans at the end of the quarter totaled fifteen seventy one, an increase of 19% from the prior quarter and an increase of 266% from Q3 of last year. The dollar value of our loan portfolio at the end of the quarter totaled $100,700,000 which is up 5% from the prior quarter and up 103% from Q3 of last year. Typically, the number of loans increased during periods of rising precious metals prices and decreased during periods of declining precious metals prices. Over the past year, as silver prices have rebounded, we have experienced growth in our CFC loan portfolio.

That concludes my prepared remarks. I'll now turn it back over to Greg to talk about the progress we've been making on our key operational initiatives. Greg?

Speaker 1

Thank you, Thor. The A Mark business continues to benefit from the sustained demand in the precious metals market. The acquisition of JMB was truly transformative for the company and is allowing us to take greater advantage of the heightened demand for precious metals through our expanded online and e commerce channels. A Mark's direct to consumer segment, which includes JMB as well as Goldline, is now A Mark's fastest growing business segment with the highest margins. A Mark delivered a record quarter in our direct to consumer segment, which included continued strength at Goldline and notably a strong initial contribution from J.

M. Bullion in the twelve days that post transaction. We're nearly sixty days into the acquisition, and I can say that JMB has exceeded our expectations in terms of integration, synergy and financial performance. Being a vertically integrated operator with robust minting capabilities has provided A Mark with a competitive advantage, including price stability within the supply chain as well as access to silver during volatile periods and supply constrained environments. Our private mint, SilverTowne, which recently became 100% owned by A Mark, and our minority interest in the Sunshine Mint continue to enable our wholesale sales and ancillary services and direct to consumer segments to outperform.

Our new equipment purchases at the SilverTowne Mint have expanded our overall capacity and production capabilities, which has allowed us to produce on average 500,000 ounces per week over the last thirty days. It's important to note that the SilverTowne Mint has been able to operate 20 fourseven for quite some time now and has really benefited and helped us with this supply of fabricated product. During the third quarter, we installed our new pizza oven furnace, which is now producing the newly designed 100 ounce and kilo Pony Silver Bars. JMB has seen initial success selling these, which are in high demand from the marketplace. SilverTowne is bringing another pizza oven online this quarter.

We expect the two new furnaces will ultimately increase SilverTowne's overall ounce outturn by at least 50% compared to a year ago. It's worth noting that these production numbers are based on demand and are a function of product quantities and the mix of products fabricated. So average weekly production volumes do not always provide a complete picture. That being said, we've scaled capacity to meet demand and in turn further improve product quality and overall design capabilities. As demand for silver and gold products continue to outstrip supply, our focus remains on industrial sourcing of raw material and fabricated product production.

Turning to our logistics operation, Q3 set a record for retail shipping from AM Global Logistics. In fact, during the quarter, we saw a 74% year over year increase in the number of packages shipped. Additionally, we are very pleased with the initial progress we've made during April integrating JMB's Dallas facility into our overall logistics operation. The Dallas facility is now online, and we are starting to see the early benefits from this facility managing all of J. M.

Bullion's retail buyback activities. CFC and our Secured Lending segment continue to rebound nicely from the lows we saw last March. As Thor mentioned, we saw the value of our loan book surpass $100,000,000 at the end of the third quarter. On top of this, we're realizing nice synergies between TDS, CFC and J. M.

Bullion. CFC is now able to offer secure financing to J. M. Bullion's user base, allowing them to partially monetize their existing fully paid for precious metals holdings. So looking ahead, we have entered our fiscal fourth quarter with continued economic and operational momentum.

We remain confident that our favorable competitive position, industry leading platforms and proven business model will help us to capitalize on near term opportunities and realize continued growth and profitability over the long term. Operator?

Speaker 0

Thank you. We will now begin the question and answer session. Our question comes from Tom Forte of D. A. Davidson.

Please go ahead.

Speaker 4

Great. So off, Greg, Thorne and Kathleen, bravo. Just unbelievable performance. So I have one question and one follow-up. So for my question, question, you converted JM Bullion and the SilverTowne Mint to wholly owned operations.

So Greg, at a high level, what are you thinking of as far as future opportunities, including potentially international e commerce?

Speaker 1

I mean, it's certainly on our list. We've talked about it. Michael's on the phone also and it's something that he and I talk about regularly. I mean, we currently have a good list of initiatives and projects that we're focused on. We prioritize them.

And I would say that international expansion is near the top of the list. We believe that it's a pretty big step to try to recreate J. Amboyant outside of The United States. And our initial feelings today are that we want to find a good partner that has an existing business that we're familiar with, that we believe is a good operator, that has local knowledge and is versed in whatever area geographically we decide to tackle But I would say that we've already in the last forty five or sixty days, we've got it on the list and we're investigating some opportunities. We believe that's definitely on the horizon.

Speaker 4

Great. And then for my follow-up question, I wanted to look ahead kind of the next to the next twelve months. Certainly, there's a lot of concerns about inflation. Historically, how has that translated to interest in precious metals, especially gold? And then how should we think about historically when you have inflationary concerns and a high level of interest in gold, how that's translated to spreads?

Speaker 1

Spreads are driven by demand. And as you can see from our results, we're seeing incredible demand for the products that we sell. It's hard for me to exactly how inflation is going to play out because it's a 180 degree pivot from what we were seeing nine to ten months ago when we were dealing with the COVID and inflation was nowhere to be seen. I think that we have always said over the for as long as I've been in the business and as long as I've been doing this, and I remember 1979 and 1980 as being extremely good times for the precious metals business. It can't hurt us when millions of people are out there saying the I word every day.

And we hear it and there's clearly a new level of concern and anxiety in our customer base as inflation gets talked about. We talked about this on our last call. And I think this is the kind of environment that we always believe is going to be beneficial. I've never had an opportunity or a vertically integrated business with millions of retail customers that we acquired over the last six months to actually see what the effect is going to be. But my guess is it's going to be very positive.

Speaker 4

Great. So Greg, Zor, Kathleen and Michael too, thanks for the great quarter.

Speaker 1

Thank you. And thanks for your report, Tom. You've done a great job of learning the company fairly quickly.

Speaker 4

Thanks. Appreciate that.

Speaker 0

Our next question comes from Craig Irwin of Roth Capital Partners. Please go ahead.

Speaker 5

Good evening and thank you for taking my questions. Can you maybe talk a little bit about, the updated metrics for JM Bullion? When you announced the acquisition and completed the deal, the metrics that you shared with everyone predated, I guess we'll call it the reddit run on on silver. And I I would guess that both, A Mark and JM Bullion picked up quite a few customers in the preceding weeks. Do you have updated metrics on sort of total number of customers, average ticket size, etcetera, that you might be able to share with us?

Speaker 1

I don't think I don't have the specific numbers right now, and they're very fluid. But maybe, Michael, do you think you want to just tackle kind of an overview of how new client acquisitions have been going and how this credit situation has affected us? But obviously, we've seen a lot of new customers, very unique customers, Craig. But Michael, go ahead and talk about that.

Speaker 6

Yeah. No problem. So at a high level, the user acquisition remains very strong. We saw it setting records at the January and early February, and we've stayed pretty close to those numbers. And I think what's been encouraging to see in our business is those customers who did come in as part of that silver squeeze, they are being as sticky as our normal customers are.

So the the demand for silver at the retail level is is remaining remarkably high, and, obviously, we're happy to see that. On the AOV side, we're still largely in line with with, what we had in the acquisition numbers. So still a very heightened AOV versus our historical, which is closer to $1,000

Speaker 5

Understood. Thank you. So, Greg or maybe Storr, when I look at the other income from your equity investments, your minority investments in a small number of other companies out there, 7,750,000.00, in the quarter is a very nice number. I think that greatly exceeds the total amount you've invested in those other companies, to date. Can you maybe talk about, the potential for A Mark to fold them into the family, the way that, JM Bullion was brought on board?

You know, does this environment create appetite with those minority investments, for a path to market? And do you feel that A Mark is obviously the best path to market?

Speaker 1

Sure. I think the $7,700,000 also includes a catch up on JM Bullion of a little under $4,000,000 So it's a little outsized because we got the benefits in March of catching up on our gym the way we normally report it, plus we had the twenty or so days in March that we had. So the numbers are a little bit one timer there. But I will say that the other equity investments that we have right now are outperforming in similar fashion based on their size and what our expectations are. So I would expect that to continue.

I think we talked about this when we were doing our road show for our equity offering that we believe that rolling up businesses into our platform and into our infrastructure is at the top of our list, and continues to be. And the volatility in the marketplace and the uncertainty as to what the future holds, I believe, is good for A Mark. I believe we have data, information and metrics internally that others don't have. And how we would integrate a business with our experience and what we've been doing and seeing some of our other partners' performance, I think gives us a great opportunity to be competitive or to be a favorable stop for somebody who's looking to monetize what they've built. So I think we're I won't say that we're close to anything at the moment, but certainly Michael and I had both fielded calls from other companies that have seen the JM transaction and have expressed interest in talking to us.

We said we would do it and we plan on continuing.

Speaker 5

Great. Thank you. So my next question is about, linearity in the quarter side. I really appreciated the, the net income number of 6 and a half million from, JMD in the last twelve days of March. That is tremendous profitability north of half a million dollars a day.

You know, I assume that the A Mark, core platform saw similar, back end of the quarter strength. You know, can you confirm that we did see this skew in profitability into the back end of the quarter? And, can you maybe comment about how that's continued into the June? Are things changing from week to week? What should we think about the continuity of sort of the average of what we've been seeing, not just this quarter but over the last few quarters?

Speaker 1

Sure. I think we've talked about in the past our Q2, which ended December 31, was a little bit slower. Again, we've talked before about the timing of when we have product and when we actually sell product and deliver product. So it's hard to draw a line right down at the end of a month or the end of a quarter. So you do get some carryover or you get some take backs.

So it is it can be a little bit difficult to pinpoint. But I will say that towards the end of the calendar year in 2020, November and the December, we did see things slow down a little bit. And I would say that was particularly on the demand side. It wasn't really a product availability issue. As we've talked about before, towards the December and the first couple of weeks January, we saw increased demand specifically for products that we had and we were able to deliver very quickly.

I think just kind of giving you a background, towards the January, again, I think things kind of slowed a little bit. A little bit of that might have been product availability. February 1, February, we had the silver Reddit explosion, which Michael and I have talked about, that drew a whole new unique group of customers to the JM base as well as other companies, A Mark Supplies and other companies A Mark has equity interest in. And then I think towards the March, did see really good numbers, and they did carry over into the April. And April was we were very comfortable with.

And now we're just getting into May, it's probably a little bit early to say there how May is going to be. But I'll say I would say that March was great going into the new quarter. April has been April is looking like and as we're seeing the numbers now, April is looking good. And like we talked about earlier, I mean, the macro environment is setting up very good for us right now. There's we have had to battle over the last four or five years basically a never ending up to the right stock market.

And this is supposed to be very good for us and it's looking like it is, where we're getting some shaking and some volatility in equities and some talk about inflation and higher rates and the feeling that maybe we're not hearing everything that's going on, that there's something out there that from an inflation standpoint that's not being reported. I think that that is very good to to drive our customer base as well as, you know, the political the political winds right now still seem to be blowing in our favor. So it's it's a very exciting time for us here at A Mark.

Speaker 5

Understood. And then last last question if I may. Physical product availability, can you maybe share, what you feel your your current positioning is? And, will this continue to be a major strategic advantage for A Mark over the coming quarters?

Speaker 1

I mean, the demand stays where it is and, you know, we've got the lion's share of the supply, it's going to be very good for us. I think that from a manufacturing standpoint, our SilverTowne men and our relationship with Sunshine has definitely given us product and given JM and Goldline product when others don't have it. And that's good for us. As it relates to available product at the moment, we are in the process, as I said, of bringing some new equipment online at SilverTowne. And that I would say we probably have a little less product for sale in May, but we anticipate that towards the May or the June, all of our new equipment will be running and our old equipment should continue to run at max capacity.

So we're looking forward to creating new products. We have a number of new products on the drawing board that we hope to launch in the next few weeks, as well as Sunshine is performing very well right now and manufacturing a number of new gold products, a number of new silver products for both private and sovereign mint use. And it looks pretty good. The U. S.

Mint continues to struggle with supply. And I know a number of you follow what goes on at the U. S. Mint as it relates Silver Eagles. And there's been ongoing lack of supply in the twenty twenty Silver Eagles, which has been great for us because we've had private Mint product And we've been able to fill that that lack of supply with our own product, which you can see has benefited our bottom line tremendously.

Speaker 5

Great. Well, well, thank you and, congratulations for really impressive results. Really impressive.

Speaker 1

Thanks, Craig. Thanks for all your work on the company.

Speaker 0

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.

Speaker 1

Thank you very much. Again, I just want to thank our many shareholders, old and new, that are on the call today and have supported A Mark and given us the ability to grow and perform the way we have. It's we're in a very unique position being a small public company that was able to put a deal together with JM with the help of a number of new investors as well as some of our old investors. That is has does not go unnoticed. We really appreciate it.

We hope to be continue being a great shepherd of the capital that you've trusted us with. We feel like we're doing a very good job right now. And we're I think our risk management and our the way we're viewing opportunities and viewing the protection and the growth of capital, I think, very, very good right now. And we're very happy with our prospects. Just many thanks to our employees, their dedication and commitment to A Mark's success.

We couldn't do it without our staff and our team. And we look very much forward to keeping you apprised of A Mark's progress going forward. And if there's any other questions that pop up, feel free to call any of us directly and we'll try to help you out with your questions. So thank you very much. Operator?

Speaker 0

Thank you. Before we conclude today's call, I would like to provide A 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 to A Mark's future plans, objectives, expectations, performance, events and the like are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the Securities Exchange Act of 1934. Future events, risks and uncertainties individually or 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 this strategy changes in the current domestic and international political climate increased competition for A Mark's higher margin services, which could depress pricing, the failure of the company's business model to respond to changes in the market environment as anticipated, general risks of doing business in the commodity markets, and other 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 certain of such forward looking statements, which speak only as of the dates on which they were made. Additionally, any statements related to future improved performance and estimates of revenues and earnings per share are forward looking statements. The company undertakes no obligation to publicly update or revise any forward looking statements. Readers are cautioned not to place undue reliance on these forward looking statements.

Finally, 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. Thank you for joining us today for A Mark's earnings call. You may now disconnect.