A-Mark Precious Metals, Inc. (NASDAQ:AMRK) Q1 2024 Earnings Call Transcript

A-Mark Precious Metals, Inc. (NASDAQ:AMRK) Q1 2024 Earnings Call Transcript November 7, 2023

Operator: Good afternoon and welcome to the A-Mark Precious Metals Conference Call for the Fiscal First Quarter ended September 30, 2023. My name is Jenny, and I will be your operator this afternoon. Before this call, A-Mark issued its results for the fiscal first quarter 2024 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 home page. Joining us for today’s call are A-Mark’s CEO, Greg Roberts; President, Thor Gjerdrum; and CFO, Kathleen Simpson-Taylor. Following their remarks, we will open the call to your questions. Then before we conclude the call, I’ll provide the necessary cautions regarding the forward-looking statements made by management during this call.

I would like to remind everyone that this call is being recorded, and we will be made available for replay via link available in the Investor Relations section of A-Mark’s website. Now, I would like to turn the call over to A-Mark’s CEO, Mr. Greg Roberts. Sir, please proceed.

Greg Roberts: Thank you, John, and good afternoon to everyone. Thank you for joining our call today. As you can see, our first quarter results demonstrate the strength and scalability of our fully integrated platform to generate profitable results, even during conditions. Despite facing a less favorable macroeconomic environment and softened levels of demand compared to recent quarters, we still delivered $30 million plus of EBITDA and diluted earnings of $0.77 per share and continued to grow our direct-to-consumer customer base. Consistent with our commitment to generate shareholder value, the company also repurchased a total of 171,268 shares of our common stock for $5 million during the first quarter, bringing our total treasury stock to 14.8 million.

We continue to view our share repurchase program as an attractive investment opportunity for the company and another way to deliver value to our shareholders. Finally, we amended our trading credit facility during the quarter, resulting in increased liquidity and the reclassification of debt to long-term. With that, I will now turn the call over to our CFO, Kathleen Simpson-Taylor, to walk you through our financials in more detail. Then our President, Thor Gjerdrum, will discuss our key operating metrics. Afterwards, I will provide a further update on our business and growth strategy and welcome your questions. Kathleen?

Kathleen Simpson-Taylor: Thank you, Greg and good afternoon everyone. Our revenues for fiscal Q1 2024 increased 31% to $2.5 billion from $1.9 billion in Q1 of last year. Excluding an increase of $660.1 million of forward sales, revenues decreased $75.8 million or 5%, which was due to a decrease in gold and silver ounces sold, partially offset by higher average selling prices of gold and silver. The DTC segment contributed 13% and 23% of the consolidated revenue in fiscal Q1 2024 and fiscal Q1 2023, respectively. Revenue contributed by JMB represented 12% of the consolidated revenues for Q1 of 2024 compared to 20% in Q1 of last year. Gross profit for fiscal Q1 2024 decreased 36% to $49.4 million or 1.99% of revenue from $76.6 million or 4.03% of revenue in Q1 of last year.

The decrease in gross profit was due to lower gross profits earned from both the wholesale sales and ancillary services and DTC segment. Gross profit contributed by the DTC segment represented 43% of the consolidated gross profit in fiscal Q1 2024 compared to 55% in the same year ago period. Gross profit contributed by JMB represented 36% of the consolidated gross profit in fiscal Q1 2024 compared to 48% in Q1 of last year. SG&A expenses for fiscal Q1 2024 increased 23% to $21.8 million from $17.8 million in Q1 of last year. The increase was primarily due to an increase in consulting and professional fees of $2 million and increase in compensation expense including performance-based accruals of $1.2 million, higher advertising costs of $0.4 million, and increase in insurance costs of $0.3 million, and an increase in information technology costs of $0.2 million.

Depreciation and amortization expense for fiscal Q1 2024 decreased 12% to $2.8 million from $3.2 million in Q1 of last year. The decrease was primarily due to a $0.5 million decrease in amortization of acquired intangibles related to JMB. Interest income for fiscal Q1 2024 increased 20% to $6.1 million from $5.1 million in Q1 of last year. The aggregate increase in interest income was primarily due to an increase in other finance product income of $0.7 million and an increase in interest income earned by our secured lending segment of $0.3 million. Interest expense for fiscal Q1 2024 increased 60% to $9.8 million from $6.1 million in Q1 of last fiscal year. The increase in interest expense was primarily due to an increase of $3.2 million associated with our trading credit facility due to an increase in interest rates as well as increased borrowings and the AMCF notes, including amortization of debt issuance costs, as well as an increase of $0.5 million related to product financing arrangements.

Earnings from equity method investments in Q1 2024 increased 1% to $2.71 million from $2.68 million in the same year ago quarter. Net income attributable to the company for the first quarter of fiscal 2024 totaled $18.8 million or $0.77 per diluted share. This compares to net income attributable to the company of $45.1 million or $1.83 per diluted share in Q1 of last year. Adjusted net income before provision for income taxes, a non-GAAP financial performance measure, which excludes acquisition expenses, amortization, and depreciation for Q1 fiscal 2024 totaled $26.8 million, a decrease of 56% compared to $61.3 million in the same year ago quarter. EBITDA, a non-GAAP liquidity measure for Q1 fiscal 2024 totaled $30.4 million, a 51% decrease compared to $62.2 million in Q1 fiscal 2023.

Turning to our balance sheet. At quarter end, we had $48.2 million of cash compared to $39.3 million of cash at the end of fiscal year 2023. Our tangible net worth at the end of the quarter was $421.7 million, down from $436.8 million at the end of the prior fiscal year. As Greg mentioned, we amended our trading credit facility during the quarter, resulting in increased liquidity and a reclassification of the debt to long-term. The facility now matures in September 2025 and provides for automatic annual renewals. 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 2024.

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: Thank you, Kathleen. Looking at our key operating metrics for the first quarter of fiscal 2024, we sold 495,000 ounces of gold in Q1 fiscal 2024, which was down 21% from Q1 of last year and down 39% from the prior quarter. We sold 30.4 million ounces of silver in Q1 fiscal 2024, which was down 15% from Q1 of last year and down 33% from last quarter. 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 39,100 in Q1 fiscal 2024, which was down 20% from Q1 of last year and down 57% from last quarter. Approximately 32% of the new customers from the last quarter were attributable to the acquired customer list of BullionMax in June 2023.

The number of total customers in the DTC segment at the end of the first quarter was approximately 2.4 million, which was a 16% increase from the prior year, The year-over-year increase in total customers was due to organic growth of our JMB customer base as well as the acquired list of BGASC and BullionMax in October of 2022 and June 2023 respectively. The DTC segment average order value, which represents the average dollar value of products ordered, excluding accumulation program orders, delivered to DTC segment customers during Q1 fiscal 2024 was $2,440, which is up 5% from Q1 fiscal 2023, but down 26% from the prior quarter. For the first fiscal quarter, our inventory turnover ratio was 2.5, which was a 7% decrease from 2.7 in Q1 of last year and a 22% decrease from 3.2 in the prior quarter.

Finally, the number of secured loans at the end of September totaled 803, a decrease of 26% from September 30, 2022, and a decrease of 9% from the end of June. The dollar value of our loan portfolio at the end of September totaled $99.2 million, a decrease of 1% from the end of last fiscal year. That concludes my prepared remarks. I’ll now turn it over to Greg for closing remarks. Greg?

Greg Roberts: Thanks Thor.

Operator: [Operator Instructions] Is everything okay?

Greg Roberts: Yes. I’m sorry. We had a problem with the phone. Where did it? Where did I leave off?

Operator: Sir, we got to your closing remarks, Greg, but did you want me to run the Q&A and see if we have anybody in Q&A?

Greg Roberts: Fine.

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Q&A Session

Operator: Okay. So, we will now open the floor for questions. [Operator Instructions] Your first question is coming from Lucas Pipes from B. Riley Securities. Lucas, your line is live.

Lucas Pipes: Thank you very much, operator. Good afternoon everyone. Music at the beginning was better than just now.

Greg Roberts: We’ll work on that. If there’s a particular type of genre, you’d appreciate next time, let me know in advance.

Lucas Pipes: No, I appreciate that. And, look, I appreciate you taking my question. And my first one is just on the demand that you’re seeing in the market today. Obviously, there’s been a lot of geopolitical uncertainty. It seems like demand is firming up, but it would be really good to kind of get your take on the market and what might have changed since the September quarter?

Greg Roberts: Thank you. Sure. I think we did indicate on our last call that we did see some lower demand for product. And as you have noted before, we did see some compression of our premiums, which did affect our gross profit percentage. I think that there has been an ongoing sentiment in the marketplace that we’re not — our consumers and our customers seem to be a bit unsure as to where precious metal prices are going. Throughout the last 60 days, we’ve seen some significant increase in the spot prices of gold and silver. Also over the last 60 days, we’ve seen a number of dips that have resulted in significant increase in demand. So, I think you have a combination of things going on here right now. We definitely have an increased supply, particularly in silver.

And you combine that with some uncertainty and some choppy demand, you’re going to see some compression in premiums. I think at the moment, you have had gold twice over the last couple of weeks, test new highs and get very near all-time highs. The all-time high in gold in US dollars is around $2,060. And we did test that number a couple of weeks ago. I think there needs to be some conviction in the marketplace as to whether or not we’re going to see a breakout to new highs or if we’re going to see a retreat. I think in the quarter we’re reporting right now, we did see significant activity and significant uptick in demand. When we did see some dips in prices on spot prices. So, I think it’s a combination, but I think that kind of I hope that answers your question.

Lucas Pipes: That’s helpful. Thank you for that. And then I apologize. I didn’t see the margins in the wholesale and DTC segments and didn’t have the time to dig further into that. But can you remind us what the margins were in the first quarter? And how you would expect those to trend, the gross margins, here in the second quarter and not sure if you want to venture into a longer kind of medium term outlook, but would appreciate your perspective on that?

Greg Roberts: I mean, I think in the quarter, we have just finished the one that we’re reporting on right now, we did see a lower gross margin. And we are — as we enter this quarter, we’re experiencing some similar market conditions as we did last quarter. So, but I would say from a positive note, I believe the company is continuing to outperform the market conditions and I think that we’re investing in the business, we’re growing the business, and we’re seeing the results that we would expect in the market conditions. I think that as I look forward, there to me in doing this for the lab 40 years, I do see a number of macro issues continuing to pile up that I believe would be favorable to our business, whether they materialize or not, or how they have an effect on our business, I don’t my crystal ball isn’t quite that clear, but I do like the way things are setting up right now.

But we are going to need to see a pickup in demand. And obviously, you can see from the spectacular results we had last fiscal year, and particularly the results we had in Q1 of last fiscal year and Q4 of last fiscal year, the company, when given the opportunity, will perform and has a very high ceiling on what performance can be. But as it relates to micromanaging what’s going on this quarter and exactly what’s happening today or tomorrow or next week, as we have said before, our business is very volatile. I wake up every day and look at the news and look at the price of gold and the price of silver. And there’s a lot of things that go into whether we’re going to have a busy day or a busy week. And trying to identify those days in the future can be challenging.

Lucas Pipes: Thank you so much Greg and I’ll try to squeeze one last one in. In terms of the buybacks, is that more opportunistic or is there something to read into in terms of where your stock, where you see your stock trading vis a vis opportunities in M&A? thank you.

Greg Roberts: I mean, I think we’ve talked a little bit about it before. I think nothing has changed. I look at our business and I look at our balance sheet and I look at what it takes to run our business. I look at our liquidity, our bank lines, a number of different factors contribute to the decision making as to how we allocate capital. We highlighted in this press release that we did sign and enter into a new agreement with our lenders. That agreement, I believe, was a lot of hard work by Thor and Kathleen with our great partners CIBC. And the result of the new credit facility moving to two years committed, moving to long-term debt as well as increasing our flexibility as it relates to how we’re going to deploy capital, was a big win for A-Mark, and I don’t want to minimize that.