A-Mark Precious Metals Inc (AMRK) 2021 Q3 法說會逐字稿

Good afternoon, and welcome to A-Mark Precious Metals conference call for the fiscal third quarter ended March 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 2021 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's CEO, Greg Roberts; President, Thor Gjerdrum; CFO, Kathleen Simpson-Taylor; as well as JM Bullion's CEO, Michael Wittmeyer. 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.

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 JM Bullion deal, our most significant acquisition ever. A-Mark had the strongest quarter of financial performance in our history, with JM Bullion contributing $8.5 million of gross profit and $6.8 million of pretax income in just the last 12 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 $50.3 million in net income, net of the onetime remeasurement gain of $26.3 million related to the JMB acquisition.

A-Mark's results easily beat the guidance we issued at the end of February. As many of you know, during the quarter, we also closed our public offering, increasing our common shares outstanding to 11.1 million.

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 Gjerdrum, will discuss our KPIs. Afterwards, I will provide a further update on our 3 business segments and growth strategy. Kathleen?

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 3 months ended March 31, 2021, included $68.4 million of revenue and $6.8 million of pretax income attributable to JMB's operations from March 20, 2021 through March 31, 2021.

With that in mind, let us turn to our financial results for fiscal Q3 and the first 9 months of fiscal 2021. Our revenues for fiscal Q3 2021 increased 63% to $2.05 billion from $1.26 billion 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 9-month period, our revenues increased 43% to $5.43 billion from $3.80 billion 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 2021 increased 203% to $68.2 million or 3.33% of revenue from $22.5 million 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 & 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 profit, primarily due to increased volatility, and these were partially offset by the impact of higher forward sales.

For the 9-month period, our gross profit increased 216% to $123.1 million or 2.27% of revenue from $38.9 million 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 & 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&A expenses for fiscal Q3 2021 increased 42% to $14.8 million from $10.4 million in Q3 of last year. The increase in selling, general and administrative expenses was primarily due to $2.2 million of costs associated with our acquisition of JMB; an increase of $1.7 million related to JMB's operations subsequent to the acquisition, of which $1 million is attributable to amortization expense; and an increase of $0.3 million associated with Goldline's marketing activities.

For the 9-month period, our SG&A expenses increased 28% to $33.8 million from $26.5 million in the same year ago period. The increase in SG&A expenses was primarily due to $2.6 million in costs associated with the JMB acquisition; increases in compensation expense, including performance-based accruals of $2.1 million; an increase of $1.7 million related to JMB's operations subsequent to the acquisition, of which $1 million is attributable to amortization expense; increased insurance costs of $0.7 million; and an increase in computer software expense of $0.2 million.

Interest income for fiscal Q3 2021 decreased 21% to $4.7 million from $6.0 million in Q3 of fiscal 2020. 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 9-month period, our interest income decreased 26% to $13.2 million from $18 million 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 2021 increased 6% to $5.3 million from $5.1 million in Q3 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 9-month period, our interest expense decreased 4% to $14.7 million from $15.3 million 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 2021, our net income attributable to the company totaled $76.6 million or $8.84 per diluted share compared with net income of $11.3 million 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 8.7 million shares and is not based on the 11.1 million shares which were outstanding at the end of March.

Net income attributable to the company for the 3 months ended March 31, 2021, included a $26.3 million remeasurement gain on our preexisting 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 2021 was $50.3 million. Net income attributable to the company also included $2.2 million of nonrecurring costs associated with the acquisition of JMB.

For the 9-month period, our net income attributable to the company totaled $108.6 million or $13.61 per diluted share compared to net income of $12.7 million or $1.80 per diluted share in the same year ago period. Our diluted EPS for the 9-month period is based on the weighted average shares outstanding during the 9-month period, which total 8 million shares and is not based on the 11.1 million shares outstanding at the end of March.

Net income attributable to the company for the 9 months ended March 31, 2021, included a $26.3 million remeasurement gain on our preexisting equity interest in JMB in connection with its acquisition. Excluding the remeasurement gain, net income attributable to the company for the 9 months ended March 31, 2021, was $82.3 million. Net income attributable to the company also included $2.6 million of nonrecurring costs associated with the acquisition of JMB.

Now turning to our balance sheet. At quarter end, we had $38.8 million of cash compared with $52.3 million of cash at the end of fiscal year 2020. Our tangible net worth at the end of the quarter was $110.5 million, up from $91 million at the end of fiscal year 2020. Our balance sheet now includes JMB 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 noncash 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?

Thank you, Kathleen. Looking at our key operational metrics for the third quarter and 9 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 9-month period, we sold 1.97 million ounces of gold, which is up 30% from the same period last year. We sold 33.1 million ounces of silver in Q3, which is up 29% from Q3 of last year and up 56% from last quarter. For the 9-month period, we sold 78.6 million 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 desks, increased 51% to 44,966 tickets from the prior quarter, but decreased 8% from Q3 of last year. For the 9-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 third 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 was consistent with the inventory turnover ratio in Q3 of last year. For the 9-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 1,571, 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 $100.7 million, which is up 5% from the prior quarter and up 103% from Q3 of last year. Typically, the number of loans increase during periods of rising precious metals prices and decrease 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?

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 JM Bullion in the 12 days net post transaction. We're nearly 60 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 & 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 30 days. It's important to note that the SilverTowne Mint has been able to operate 24/7 for quite some time now and has really, 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 2 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 improved 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 A-M 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 JM 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 million at the end of the third quarter. On top of this, we're realizing nice synergies between TDS, CFC and JM Bullion. CFC is now able to offer secure financing to JM 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?

(Operator Instructions) Our first question comes from Tom Forte of D.A. Davidson.

So first off, Greg, Thor and Kathleen, bravo. Just unbelievable performance. So I have one question and one follow-up. So for my question -- first 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?

I mean it's certainly on our list. We've talked about it. I -- Michael is 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've prioritized them. And I would say that international expansion is at the -- is near the top of the list. We believe that it's a pretty big step to try to recreate JM Bullion 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 first. But I would say that we've already -- in the last 45 or 60 days, we've got it on the list, and we're investigating some opportunities. So we believe that's definitely on the horizon.

Great. And then for my follow-up question, I wanted to look ahead kind of through the next 12 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?

Well, 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 know exactly how inflation is going to play out because it's a 180-degree pivot from what we were seeing 9 to 10 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 for a vertically integrated business with millions of retail customers that we acquired over the last 6 months to actually see what the effect is going to be, but my guess is it's going to be very positive.

Great. So Greg, Thor, Kathleen and Michael, too, great quarter.

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

(Operator Instructions) Our next question comes from Craig Irwin of ROTH Capital Partners.

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 silver. And 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, et cetera, that you might be able to share with us?

Yes. 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 the -- this Reddit 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.

Yes. No problem. So at a high level, the user acquisition remains very strong. We saw it setting records at the end of 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 demand for silver at the retail level is remaining remarkably high, and obviously, we're happy to see that.

On the AOV side, we're still largely in line with what we had in the acquisition numbers. So still a very heightened AOV versus our historical, which was closer to $1,000.

Understood. So Greg or maybe Thor, when I look at the other income from your equity investments, your minority investments in a small number of other companies out there, $7.75 million in the quarter is a very nice number. I think that 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 pull them into the family the way that JM Bullion was brought on board? 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?

Sure. I think the $7.7 million also includes a catch-up on JM Bullion of a little under $4 million. So it's a little outsized because we got the benefits in March of catching up on our GEM the way we normally report it, plus we had the 20-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 it continues to be. And there -- 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 have both fielded calls from other companies that have seen the JM transaction and are -- have expressed interest in talking to us. So we said we would do it, and we plan on continuing.

Great. So my next question is about linearity in the quarter. So I really appreciate the net income number of $6.5 million from JMB in the last 12 days of March. That is tremendous profitability, north of $0.5 million a day. I assume that the A-Mark core platform saw a similar back end of the quarter strength. 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 quarter? 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?

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-back, 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 beginning of 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 end of December and the first couple weeks of 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 end of January, again, I think things kind of slowed a little bit. A little bit of that might have been product availability. February 1 -- first week of 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 tail end of March, we did see really good numbers, and they did carry over into the beginning of April. And April was -- we were very comfortable with. And now we're just getting into May, and it's probably a little bit early to say there how May is going to be, but I'll say -- I would say that end of March was great going into the new quarter, and April has been -- April is looking like -- 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 4 or 5 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 is very good to drive our customer base. As well as the political winds right now still seem to be blowing in our favor. So it's a very exciting time for us here at A-Mark.

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

I mean if the demand stays where it is and 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 Mint 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'll probably have a little less product for sale in May, but we anticipate that towards the end of May or the beginning of 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 to Silver Eagles. And there's been an ongoing lack of supply in the 2020 Silver Eagles, which has been great for us because we've had private mint product. And we've been able to fill that lack of supply with our own product, which you can see has benefited our bottom line tremendously.

Great. And congratulations for really impressive results, really impressive.

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

(Operator Instructions) 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.

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, and that 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 protection and the growth of capital, I think, is very, very good right now. And we're very happy with our prospects.

So -- and 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?

Thank you. Before we conclude today's call, I would 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 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, I would like to remind everyone that a recording of today's call will be available for replay via a link in the Investors section of the company's website.

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