A-Mark Precious Metals, Inc. (NASDAQ:AMRK) Q2 2024 Earnings Call Transcript

A-Mark Precious Metals, Inc. (NASDAQ:AMRK) Q2 2024 Earnings Call Transcript February 6, 2024

A-Mark Precious Metals, Inc.  isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, and welcome to the A-Mark Precious Metals Conference Call for the Fiscal Second Quarter ended December 31, 2023. My name is Paul, and I will be your operator this afternoon. Before this call, A-Mark issued its results for the fiscal second 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 a 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, Paul, and good afternoon, everyone. Thank you for joining our call today. Our second quarter results demonstrate the strength of our fully integrated platform to generate profitable results. We delivered $0.57 per diluted share and generated $25.1 million of non-GAAP EBITDA during the quarter, underscoring our ability to manage less favorable market conditions while still delivering solid results. During the quarter, we successfully repaid our notes payable for $100 million on our asset-backed securitization and continued to enhance shareholder value by increasing our share repurchase program by buying back an additional 440,000 shares of our common stock for approximately $12 million. This morning, we announced that we entered into a non-binding letter of intent with AMS Holdings, a leading multichannel marketer of vintage and modern coins, which provided for three transactions.

The most significant of these transactions is our planned acquisition of LPM Group Limited, one of Asia’s largest fabricated precious metals dealers. This strategic acquisition is an important step in growing A-Mark’s international presence in Asia and reflects our commitment to expanding A-Mark’s global reach. With access to A-Mark’s inventory and resources, we expect that LPM will be able to secure larger purchase orders and will be able to provide their customers with a broader set of product offerings. We are hopeful that our proven wholesale and e-commerce expertise and our portfolio of products and ancillary services such as storage and fulfillment will assist LPM in its planned growth strategy. In addition to the LPM transaction, Pinehurst Coin Exchange, our strategic affiliate, of which A-Mark owns 49% and one of the nation’s largest distributors of modern certified coins, will be acquiring all of the assets of ModernCoinMart from AMS.

ModernCoinMart is one of the more established modern bullion coin dealers in the U.S, while also shipping to many international locations. Through this strategic acquisition, Pinehurst intends to further expand its direct-to-consumer business and its product offering to its customers. The third transaction involves a joint venture between A-Mark, Pinehurst and Stack’s-Bowers Numismatics, a related party of A-Mark to acquire a 10% common equity interest in AMS. We expect to close these three transactions simultaneously by the end of this month, subject to preparation and execution of definitive agreements and the receipt of third-party consents or approval. As we continue to invest in growing our platform and global footprint, we will also continue our focus on logistics automation initiatives at our AMGL facility in Las Vegas.

These initiatives are designed to enhance our operational efficiency, enabling us to effectively manage a larger number of SKUs and increase volume all while minimizing operational costs. We are confident that these strategic measures will support our growth strategy as we strive to further expand and diversify our business. Now, I will hand the call over to our CFO, Kathleen Simpson-Taylor, who will provide a more detailed overview of our financials. Then A-Mark President, Thor Gjerdrum, will discuss our key operating metrics. Afterwards, I will provide further insights into our business and growth strategy. Kathleen?

Kathleen Simpson Taylor : Thank you, Greg, and good afternoon, everyone. Our revenues for fiscal Q2 2024 increased 7% to $2.079 billion from $1.950 billion in Q2 of last year. Excluding an increase of $231.6 million of forward sales, revenues decreased $102.5 million or 7%, 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 18% and 23% of the consolidated revenue in the fiscal second quarters of 2024 and 2023, respectively. Revenue contributed by JMB represented 16% of the consolidated revenues for Q2 of 2024 compared to 21% in Q2 of last year. For the six months period, our revenues increased 19% to $4.563 billion from $3.850 billion in the same year ago period.

Excluding an increase of $891.6 million of forward sales, revenues decreased $178.2 million or 6%, 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 15% and 23% of the consolidated revenue for the six months ended December 31, 2023 and 2022, respectively. Revenue contributed by JMB represented 14% of the consolidated revenues for the six months ended December 31, 2023, compared with 21% in the same year ago period. Gross profit for fiscal Q2 2024 decreased 28% to $46.0 million or 2.21% of revenue from $64.0 million or 3.28% of revenue in Q2 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 segments.

Gross profit contributed by the DTC segment represented 48% of the consolidated gross profit in fiscal Q2 2024 compared to 57% in the same year ago period. Gross profit contributed by JMB represented 41% of the consolidated gross profit in fiscal Q2 2024 compared to 51% in Q2 of last year. For the six months period, gross profit decreased 32% to $95.4 million or 2.09% of revenue from $140.6 million or 3.65% of revenue in the same year ago period. The decrease in gross profit was due to lower gross profits earned from both the wholesale sales and ancillary services and DTC segments. Gross profit contributed by the DTC segment represented 45% of the consolidated gross profit in the six months period ended December 31, 2023, compared to 56% in the same year ago period.

Gross profit contributed by JMB represented 38% and 49% of consolidated gross profit for the six months ended December 31, 2023 and 2022, respectively. SG&A expenses for fiscal Q2 2024 increased 8% to $22.4 million from $20.8 million in Q2 of last year. The change was primarily due to an increase in compensation expense, including performance-based accruals of $1.4 million, higher consulting and professional fees of $0.6 million and increase in information technology costs of $0.4 million, partially offset by a decrease in insurance cost of $0.9 million and lower advertising cost of $0.4 million. For the six months period, SG&A expenses increased 15% to $44.2 million from $38.6 million in the same year ago period. The change was primarily due to an increase in consulting and professional fees of $2.6 million, an increase in compensation expense, including performance based accruals of $2.6 million, an increase in information technology costs of $0.7 million, partially offset by a decrease in insurance cost of $0.5 million.

Depreciation and amortization expense for fiscal Q2 2024 decreased 14% to $2.8 million from $3.3 million in Q2 of last year. The change was primarily due to a $0.6 million decrease in amortization of acquired intangibles related to JMB. For the six months period, depreciation and amortization expense decreased 13% to $5.6 million from $6.4 million in the same year ago period. The change was primarily due to a $1.1 million decrease in amortization of acquired intangibles related to JMB. Interest income for fiscal Q2 2024 increased 27% to $6.3 million from $5.0 million in Q2 of last year. The aggregate increase in interest income was primarily due to an increase in other finance product income of $0.8 million and an increase in interest income earned by our secured lending segment of $0.6 million.

For the six months period, interest income increased 23% to $12.4 million from $10.1 million in the same year ago period. The aggregate increase in interest income was primarily due to an increase in other finance product income of $1.5 million and an increase in interest income earned by our secured lending segment of $0.8 million. Interest expense for fiscal Q2 2024 increased 41% to $10.2 million from $7.2 million in Q2 of last fiscal year. The increase in interest expense was primarily due to an increase of $2.4 million associated with our trading credit facility due to an increase in interest rates as well as increased borrowings and an increase of $1.1 million related to product financing arrangements, partially offset by a decrease of $0.3 million related to the AMCS notes, including amortization of debt issuance costs due to their repayment in December 2023.

For the six months period, interest expense increased 50% to $20.0 million from $13.4 million in the same year ago period. The increase was primarily driven by an increase of $5.6 million associated with our trading credit facility due to an increase in interest rates as well as increased borrowings, an increase of $1.6 million related to product financing arrangements, partially offset by a decrease of $0.4 million related to the AMCF notes, including amortization of debt issuance costs due to their repayment in December 2023. We also had a $0.2 million decrease in loan servicing fees. Earnings from equity method investments in Q2 2024 decreased 83% to $0.8 million from $4.7 million in the same year ago quarter. For the six months period, earnings from equity method investments decreased 53% to $3.5 million from $7.3 million in the same year ago period.

The decrease in both periods was due to decreased earnings of our equity method investees. Net income attributable to the company for the second quarter of fiscal 2024 totaled $13.8 million or $0.57 per diluted share. This compares to net income attributable to the company of $33.5 million or $1.35 per diluted share in Q2 of last year. For the six months period, net income attributable to the company totaled $32.6 million or $1.34 per diluted share, which compares to net income attributable to the company of $78.6 million or $3.18 per diluted share in the same year ago period. Adjusted net income before provision for income taxes, a non-GAAP financial measure, which excludes acquisition expenses, amortization and depreciation for Q2 fiscal 2024, totaled $21.7 million, a decrease of 53% compared to $46.5 million in the same year ago quarter.

Adjusted net income before provision for income taxes for the six months period, totaled $48.5 million, a 55% decrease from $107.7 million in the same year ago period. EBITDA, a non-GAAP liquidity measure for Q2 fiscal 2024, totaled $25.1 million, a 48% decrease compared to $48.7 million in Q2 of fiscal 2023. EBITDA for the six months period, totaled $55.5 million, a 50% decrease compared to $110.9 million in the same year ago period. Turning to our balance sheet. At quarter end, we had $28.5 million of cash compared to $39.3 million at the end of fiscal year 2023. Our tangible net worth at the end of the quarter was $426.1 million, down from $436.8 million at the end of the prior fiscal year. 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 January. It is expected that the next quarterly dividend will be paid in April 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 second quarter of fiscal 2024, we sold 450,000 ounces of gold in Q2 fiscal 2024, which was down 20% from Q2 of last year and down 9% from the prior quarter. For the 6-month period, we sold 945,000 ounces of gold, which is down 21% in the same year ago period. We sold 26.6 million ounces of silver in Q2 fiscal 2024, which was down 30% from Q2 of last year and down 13% from last quarter. For the 6-month period, we sold 57.0 million ounces of silver, which was down 23% from the same year ago period. 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 52,500 in Q2 fiscal 2024, which was down 60% from Q2 of last year and increased 34% from last quarter.

For the 6-month period, the number of new customers in the DTC segment was 91,600, which is down 49% from 180,200 new customers in the same year ago period. The number of total customers in the DTC segment at the end of second quarter was approximately 2.4 million, which is an 11% 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 from acquired customer lists. The DTC segment average order value, which represents the average dollar value of product orders, excluding accumulation program orders delivered to DTC segment customers during Q2 fiscal 2024, was $2,218, which is down 7% from Q2 fiscal 2023 and down 9% from the prior quarter. For the six months period, our DTC average order value was $2,316, which is down 2% from the same year ago period.

For the fiscal second quarter, our inventory turn ratio was 1.9, which is a 21% decrease from 2.4 in Q2 of last year and a 24% decrease from 2.5 in the prior quarter. For the 6-month period, our inventory turn ratio was 4.3, a 4% increase from 4.5 in the same year ago period. Finally, the number of secured loans at the end of December totaled 7.15, a decrease of 32% from December 31, 2022 and a decrease of 11% from the end of September. While the number of secured loans decreased, our secured loans receivable balance increased over these same periods, bringing the value of our loan portfolio as of December 31, 2023 to $106.6 million, a 4% increase from December 31, 2022 and a 7% increase from September 30, 2023. That concludes my prepared remarks.

I will now turn it over to Greg for closing remarks. Greg?

Greg Roberts : Thank you, Thor and Kathleen. A-Mark’s strategic focus remains on opportunities to further expand our geographic presence and market reach that will create synergies with A-Mark’s fully integrated platform, including our reliable access to supply, our successful logistics footprint and strong customer relations. While we work towards finalizing the transactions with AMS, we look forward to our expansion into Asia and to realizing the synergies and growth potential that these strategic initiatives may bring. Our commitment to generating stockholder value remains firm and we are confident in A-Mark’s diversified and proven business model. That concludes my prepared remarks. Operator?

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Q&A Session

Operator: [Operator Instructions] And the first question today is coming from Mike Baker from D.A. Davidson.

Mike Baker: Fully appreciate the acquisitions, they look good and presume accretive and strategically make a ton of sense. I wanted to ask you about this quarter, where the EBITDA was a little bit less than last quarter and the earnings were less than last quarter and frankly less than consensus estimates or whatever, consensus estimates are worth. But it felt like the business was sort of bottoming last quarter, but apparently not because this quarter seems a little bit softer. I guess any visibility into when EBITDA might improve or EPS might improve, when we might get back to the idea of at a minimum $1.50 over a 6-month period type of metrics?

Greg Roberts: Yes. Thank you for the question. I would say that the quarter was saw some continued softness. I think premiums on fabricated silver products in particular continue to be weaker than we have seen historically over the last 12 months. There currently is plenty of silver supply in the marketplace and that’s affecting the premium that people are willing to pay for the product. So we have been competing, keeping our market share, but we have had to adjust our premiums down both at a wholesale and a retail level. I think that on a bright note, the lower premiums have given us some great opportunities to acquire inventory, which we plan on doing and acquiring inventory that we think will be most valuable looking forward, we’ve been able to make some very opportune purchases, which you will see reflected in our balance sheet and our levels of inventory that we’re carrying.

At the same time, we’re looking to go through our inventories and move out or get rid of things that we don’t think have great potential looking forward. So there has been a bit of reshuffling both last quarter and this quarter. There are certainly some bright spots. We see the demand for U.S. Silver Eagles continuing to be strong at the moment and that particular product continues to be on allocation from the U.S. Mint and we have been continuing to buy more Silver Eagles than our allocation from some of the other distributors. So I think that it’s what we’re dealing with right now. I think the spot prices in particular have been fairly range bound and that hasn’t really caused any panic or any call to action for customers. And we’ve seen this before when spot prices are range bound and that’s certainly a factor right now.

I think the other factor is up until a week or two ago, the equity markets have been performing very well, and that can draw money away from our markets. So I think we’re seeing a little bit of that also.

Mike Baker : Can I ask a follow-up on those points? Just in terms of the spreads, the way I look at it, the way we’re tracking it, silver spreads right now look like they’re in the $7 to $8 range. Gold, I don’t know, $100, $105, $106, something like that. Can you remind us historically, what those ranges are? Where do you start making more money? What kind of spread is better for you guys? Obviously, higher is better. What gets you excited?

Greg Roberts: To be honest with you, I think making $25 million EBITDA in this market in this quarter was a fantastic result. So let’s start there. Secondly, I don’t understand your question. So you’re going to have to be more specific. The numbers you just threw out, you need to be specific what you’re asking because I didn’t, it didn’t make sense to me. I’ve also heard a lot of questions, but that one I don’t know. And the simple answer is the higher the spreads between our cost of product and what we sell them for, the more money we make, which is pretty basic.

Mike Baker : Let me rephrase it. Maybe I just didn’t ask properly. So we’re trying — what I’m trying to do is — so we’re tracking like the spot prices versus retail prices at JM Bullion and a number of competitors. And if we just look at silver, for instance, it looks like it’s around — silver spread is around $7, I think. The way we look at it, maybe I’m wrong with that. That’s what I’m…

Greg Roberts: That doesn’t really make sense to me.

Mike Baker : I’ll follow-up on that. Sorry.

Greg Roberts: It depends on what specific product you’re talking about. So to help you a little bit, the United States Mint sells Silver Eagles at approximately $3 premium per ounce over the melt value. And then whether A-Mark sells at wholesale at $4 or whether JM Bullion sells it wholesale at a $6, $7 premium, that’s what the coins end up selling out at. If you’re talking about a SilverTowne or Sunshine Minted product or even a Royal Canadian Mint product, that premium is going to be lower than the Silver Eagle. The question about premiums really, it has to be tied specifically to the product and there’s no one product that is going to instantly make A-Mark more profitable because we probably sell 1,200 different products or more. And as it relates to the question on gold, I don’t know what you’re talking about $100 per ounce. Is that $100 premium per ounce?

Mike Baker: I’ll just follow-up after. I’ll take it offline. Thank you.

Operator: The next question is coming from Lucas Pipes from B. Riley.

Lucas Pipes: I’ll start with some higher level questions, on the strategy and then maybe dig into some more specifics. First question is kind of how do you think about your presence in Asia, cultural issues to be aware of or how do you envision an integration to proceed? Thank you for your perspective on that.

Greg Roberts: Sure. I mean we’re very excited, enthusiastic about this acquisition as well as all three of the acquisitions, but leading with LPM, which we believe and based on the price we paid, it’s the most significant of the three transactions. LPM, as you can see from our release, has been around for over a decade. They’ve been operating exclusively in Hong Kong. We here at A-Mark have looked at a number of different opportunities in Asia and over the last five or six years, and we’ve never been able to complete a transaction that we thought was good for us as well as good for the other side. This transaction came together through a fairly long negotiating period and quite a bit of diligence to this point. And obviously, when you have a lot of different factors as well as an international target, it was fairly complicated for the diligence side and for us to get to a deal.

We’re very happy with the deal. We’re happy with the price we paid. We’re happy with the earn out potential here for the seller, which would be very good for us. We looked at the whole transaction as is it structured and is the risk to reward properly recognized and we think that has happened. So we’re happy with it. I think it’s important to note that historically, we were a wholesale trading company before we got into our DTC segment. And as we’ve now expanded that greatly with JM, we believe we’ve built up a tremendous amount of expertise in DTC and e-commerce retail. LPM currently is a supplier of a number of different specialty products and they supply those all around the world, both retail and wholesale. They have a number of licenses and a number of relationships with Sovereign Mints, Private Mints, different product suppliers that we believe will be very accretive to A-Mark, that A-Mark currently does not have in their wholesale segment.

LPM currently is approximately 75% to 80% wholesale and about 20%, 25% retail. So we think there’s a tremendous amount of opportunity in the region to grow the retail side of things. Obviously, we have struggled over the years by not making an acquisition or expanding in this area for the cultural reasons that we just aren’t familiar with. I think the opportunity for us to acquire the business, the customers, the intellectual property and the pipeline of products that we’ve not had access to before is extremely important. This transaction gives us the best of both worlds. It gives us a very strong wholesaler, which if you’re going to be doing business in Asia, you need a wholesaler and you need a trading desk and you need people that are used to trading both wholesale and retail and you need the right people.

And I think we’re very excited about the LPM staff, particularly the CEO and Founder, Charlie Chang. And we think we are fortunate that we’ve been able to acquire a business or we are going to acquire a business that has both wholesale and retail. Bringing in both Charlie’s local knowledge and his cultural knowledge of being in business in Asia as long as he has, as well as the expertise we bring from Rob Pacelli and his team at JM Bullion on e-commerce, we’re very enthusiastic about what the potential is. And we think that we’re well positioned right now to go there and to go to that expansion. I think we’re also closely looking at the Singapore market. We believe that LPM is a good platform for us to expand into Singapore and we think there’s some great opportunity there both from the local population as well as visitors to Singapore or people who are doing business in Singapore that are from other country or so.

We think that’s a very safe environment for us, a very safe place to expand into. We’re very comfortable with LPM in Hong Kong right now, but just see this as just a really good opportunity for A-Mark to expand outside of the United States.

Lucas Pipes : Two follow-ups on that. Should we think of this as a kind of bridgehead platform into the Asian market? And then two, kind of what is your appetite for M&A after this announcement today? Is it — look, we put some good amount here on our plate, let us digest this first or do you think you will continue to be active elsewhere around the world or North America?

Greg Roberts: For sure. I think that the platform and the people and the business that we’re acquiring really gives us a great starting point to organically grow LPM’s business in Hong Kong. So, I think it’s very important and we’ve looked long and hard at this acquisition and we’re very enthusiastic about this opportunity it’s going to give us. And I think again, just to reiterate that, we really — to expand on the e-commerce side and retail in Asia, we would have needed to either relocate or we would have needed a desk and we need logistics and storage and we would have needed to create all those things before we could have even moved into the DTC market. And so the ability to acquire this business that has both things going is really a great platform for us and we believe it will be very good and we can expand very efficiently.

As I’ve said before, one of the silver linings to a slower market and lower premiums is that, we are seeing opportunities for M&A and we are look — still continue to look at a number of potential acquisitions. And I think that the two, three months that we experienced where things were softer, it’s also very difficult on our competitors. And I have always been a big proponent of, if you buy your competitors, good things happen. And we see there is opportunity out there. And we’re still very enthusiastic about other M&A opportunities. I think the size of this transaction, the $41 million as well as the other two smaller acquisitions. I think it’s a very good size for us. It’s about 10% of our tangible net worth. I think that we are able to do this very comfortably with no new debt or without any thought of raising more money.

So I think this LPM transaction is the right size for A-Mark at the moment, but I think we thought long and hard about this deal. And I think A-Mark is very focused on being able to continue everything that we’ve talked about and everything we’ve been able to do in the past, we want to make sure that everything is sized properly, so that we can look at things from a risk to reward standpoint without having to be tight. And I think the key components for us are continuing our dividends, continuing to buy back stock when we believe that the stock is undervalued and returning shareholder value that way, as well as being able to take the advantage of opportune inventory, times and things that we can buy and add to our inventory, as well as taking advantage of M&A opportunities when we are able to look at results of targets and be able to negotiate from a little bit more from strength.

The results from targets we’re looking at aren’t going to be as robust as maybe they would have been two years ago. So I think the company is very well positioned, and we’re very thoughtful in all of these sizing and the transactions we’re looking at and feel very good that we’re in this for the long haul and we can make very good decisions and take advantage of all of these opportunities as they present themselves.

Operator: The next question is coming from Andrew Scutt from ROTH MKM.

Andrew Scutt: First, I’d just like to ask a few follow-ups on LPM, just maybe ask a little bit differently. So you mentioned in the prepared remarks that you see opportunities in leveraging your own inventory to help LPM secure larger orders. So I was just kind of wondering how many SKUs or products whatnot you’ll be able to provide to LPM? And then kind of secondly on that, Asian consumers, I guess, you could say have a higher propensity to invest their personal wealth in precious metals than Western consumers, so do you kind of see — like you said, maybe expanding into Singapore, but just further growth opportunities there?

Greg Roberts: Absolutely. So as the prepared remarks illustrated, LPM has operated over the last 10 years with a balance sheet that has more likely than not restricted a little bit the amount of inventory in precious metals that they are able to buy and hold. I think that one of the great, you could call it a synergy or you can call it an opportunity is that, it gives LPM the opportunity to work out of A-Mark’s inventory. So as we take these opportunities to buy new inventory at favorable premiums or prices, we will start to take into consideration what LPM believes they can sell. And when we talk about larger purchases in the marketplace, the more you buy the cheaper the price. So as LPM can identify products they can sell and take advantage of A-Mark’s balance sheet to help purchase more and hopefully get a discount, that will be a synergy that LPM will be able to take advantage of.

It will also be helpful for our own wholesale and retail business in North America that if we can get a bigger price and LPM helps us sell through 30%, 40% of what we’re buying, it’s going to make A-Mark stronger and have better negotiating power when we look to buy products, if that makes sense and answers your question.

Andrew Scutt: And then just one more follow-up. So kind of in the last 12 months, you guys have acquired a handful of additional businesses, entered a few new geographies. Meanwhile, the mints, owned mints have been running at near or at full capacity. I know there’s kind of oversupply in the market right now, but maybe over the medium term, could you share any thoughts around the mint capacity expansion?

Greg Roberts: I mean, at the moment, we’re not looking too much for expansion. We’re comfortably at the moment managing the production out of the SilverTowne Mint. We have been fortunate enough that the SilverTowne Mint does a great job at pivoting and being very nimble when it comes to what they produce. So whether it’s 1 ounce rounds or 100 ounce bars or specialty products, whatever it is, we’re able to keep them busy with altering or adjusting what product they’re making every week. So this is just a balance and production discussion that we go through once or twice a week on what we want them to manufacture. At the moment I don’t see a situation where we need to grow the production ounce numbers at either Sunshine or SilverTowne.

But as the premiums tend to contract, there is a fixed cost to manufacturing this product, and I do believe that we could see opportunity if we get a prolonged lower premium environment, we could find a situation where a smaller mint just can’t make money at the prices that we can produce at and that may give us an opportunity to acquire some equipment or to do an M&A type activity as it relates to minting. I think there will be opportunities down the road, but nothing that we’re focused on at the moment.

Andrew Scutt: And last very quick one for me. You’ve been mentioning being opportunistic in acquiring inventory. Do you guys, just kind of with the potential volatile election year coming up, do you guys have an optimal inventory level in mind or are you guys thinking of that as you’re acquiring additional inventory?

Greg Roberts: Certainly, we feel here at A-Mark management that there are a number of events in the future and a number of situations that will be favorable to A-Mark. We try not to predict the future, but we do see a number of situations that seem to be lining up that historically have shifted the supply and demand equation for us in our products. And I think that personally, I don’t want to speak for everybody, but personally, I do feel there are a number of things, the election, the continuing bank situation, the commercial real estate issues, what is really going to happen to interest rates and inflation. So, I do see a lot of, just kind of what I would say yellow lights that are flashing. I think our job is to balance. And as I mentioned earlier, we’re looking at the balance and the mix of our inventory right now, and we want to make sure that as we increase inventory and as we look towards the future, we want to make sure we have the inventory that gives us the greatest potential if an event occurs.

So we are consciously looking to the mix of inventory, repositioning inventory, selling inventory that we don’t think currently has potential, and acquiring new inventory that will give us that opportunity. In conjunction with that, you may see our inventories rise over the next six months and you will most likely see our carry cost rise a little bit as we look to position ourselves like we have in the past to hopefully be in a position if the supply and demand equation changes that we have the product that everybody wants. That’s how we do the best when we are well positioned and have product because production, manufacture, financing of inventory and being able to do that and pivot quickly, in our business, you just can’t do that overnight.

So, we are investing in ourselves, we’re investing in all the different areas that I’ve talked about, but we are currently looking to invest in the right inventory that will make us the most money when we sell it.

Andrew Scutt : Thanks again. Congrats on the quarter and the acquisitions.

Operator: The next question is coming from Greg Gibas from Northland Securities.

Greg Gibas: I wanted to first asks, how do LPM’s margins maybe compared to A-Mark’s, should we think of them as relatively comparable?

Greg Roberts: I think it’s a mix. It is a mix between retail and wholesale, and I think you should look at it as a mix, and that I think the product mix of what they sell is a little bit skewed more towards licensed specialty products that do carry a little higher margin even at a wholesale level. It’s important to note that all of our DTC brands, whether it be JM Bullion or Silver Gold Bull or Pinehurst, are customers of LPM. So LPM through their licensing and their exclusive products are sellers of products that we have historically needed. Now we have had to share those products with other retailers. So I think it’s fair to say that we haven’t historically got as much of LPM’s wholesale sales of product that we would like. So we see that as an opportunity to expand and be a great distributor for LPM on their specialty products. I think that their margins should skew a little bit higher than A-Mark Wholesale, but probably not as high as our DTC businesses.

Greg Gibas: And just as we think about modeling, hard to say where things move. But have you seen, just as we think about fiscal Q3 so far, have you seen similar spreads relative to fiscal Q2?

Greg Roberts: Yes. I think that in some areas, I would say, January and February, we saw some slight strength. I think right now we’re seeing a little bit of strength in the Silver Eagle market, which generally does bode well for our private mint product or our other sovereign mint products. And I do feel at the moment a little more demand and a little less supply on the Silver Eagle market. So I would say that’s probably the plus side of things. As it relates to 1 ounce, 5 ounce, 10 ounce private label product, I think that we’re seeing similar premiums as what we saw in Q2. Some products a little bit lower, some products a little bit higher. But we’re trying our best to inventory as broad a mix of products as we can so that we’re able to fill any orders when they come in.

Operator: The next question is coming from Brandon Coffin from Praetorian Capital.

Brandon Coffin : I guess, we’re just curious, if maybe you could help us understand A-Mark’s relationship with big box retailers like Costco and Walmart, specifically where A-Mark kind of fits into that ecosystem. And if you could help us just by clarifying, which specific business segments are earning revenue from those two entities?

Greg Roberts: Yes, great question. Walmart has been selling into the market for a long time. We indirectly supply them. We have not seen the growth in Walmart that is material to A-Mark, but they have been there for a while. That big box comment is not really anything new for us. I think everybody is very interested in Costco. Costco has been in the news. What Costco is doing at the moment? I think that A-Mark is very well positioned for this. I will say that our partners at Silver Gold Bull in Calgary are currently supplying Costco. They are selling products in the Costco stores. Silver Gold Bull has a presence on the floor of Costco’s in Canada and as well as handling some of their logistics and some of their order fulfillment.

So we are definitely in tune. Silver Gold Bull specifically at the moment is working in Canada and we continue to look for opportunities where A-Mark or Silver Gold Bull can participate in any domestic needs that Costco may have. In general, I think Costco’s entry into the precious metals market has the potential to expand the overall market. As a trusted retailer, Costco could introduce new investors to the benefits of owning precious metals, thereby contributing to the growth of our overall industry. So, I believe that is a positive. I think that Costco’s widespread presence and accessibility can just make precious metals more convenient for a broader demographic. And I think the move allows consumers to explore and purchase precious metals during their routine shopping experience.

I’ve heard different numbers, but I think Costco has over 140 million members across North America and Canada. So obviously, we see this as a large opportunity to bring new customers into a marketplace we have been excited about for a long time. I think that any time that you see a new demographic or a new group of people in our marketplace, it does give A-Mark and our DTC an opportunity to try to take advantage of that. To this point, what we’ve seen is Costco is limiting the amount of ounces that a customer can buy. They seem to be using this currently as a way to increase membership in their different membership programs, and I think that’s good for us. Talking to the guys at Silver Gold Bull and from their reports of actually having some pop-up stores in Canada.

To this point, they’ve been very optimistic and they’re very positive about their interactions with the Costco customers and the customer’s interest in learning more about precious metals. So I think this is very good for us. I think it really creates a terrific opportunity for A-Mark’s DTC segment and their companies, in that if a customer is limited in buying 5 ounces of gold from Costco or 1 ounce of gold at a time from Costco. If the customer is educated and wants to buy more, we hope very much that they will find their way to one of our DTC brands. So that’s how we see it as an opportunity for A-Mark.

Brandon Coffin : And then just a follow-up. Where exactly do you see those potential future opportunities coming first? Would that be maybe to the wholesale arm or something with the men’s where Costco is potentially buying and selling SilverTowne and Sunshine products?

Greg Roberts: I think that Costco in Canada has already started to sell Sunshine products. So that answers that question. And I think that we view, Costco, if it continues and it’s long-term, I think we will be able to service them across a number of our platforms and our businesses, whether it be Private Mint products, whether it be wholesale, whether it be storage and logistics. We’re ready to except the challenge if COSCO wants our involvement and we think we’re well positioned for that right now.

Operator: The next question is coming from Sy Jacobs from Jacobs Asset Management.

Sy Jacobs: So I wanted to drill down on the sort of LPM accretion calculation. So this past quarter, which was a slow quarter, you A-Mark as it stands had about a 1.2% EBITDA margin, it’s been as high as I think triple of that in previous quarters. Given what you said earlier about the mix of retail to wholesale being somewhat similar to A-Mark’s, is it fair or conservative or aggressive to apply that range of EBITDA margins and good and bad environments to the $400 million of revenue, average revenue you’re acquiring from LPM? And then I’ve got two follow-ups to that.

Greg Roberts: As you can tell from our performance, it’s a little bit of a moving target. LPM was significantly had better margins in 2021 and 2022 than they had in 2023. As we looked at the opportunity and as we looked at the acquisition and the price that we ended up paying, we think that our cash and stock down at $41 million was a very fair entry point for us with $11.5 million of tangible net worth. And we did negotiate and we put a little bit of any further payout on this transaction that it’s pay for performance. So we were very in tune with giving the sellers an opportunity that if the market turns or if things get better that they would participate with us and each time we worked on the structure and changed the structure or negotiated the structure, we were of the position that if we pay out all of the earn out numbers and the performance needed for all of those earn out numbers, we would be very happy to pay it out.

It would validate the purchase and it would be a very good acquisition for us. So I think that part of the challenge in looking at this transaction, and I know it’s what you’re thinking and what you’re focused on, is how do we look at what’s normal and what can we expect and it comes a little bit with market conditions. But I think our belief is that we can add revenue as well as hopefully expand their margin a little bit. But for the most part, I think this is a business that is going to have closer to probably 2% EBITDA margins, so maybe a little bit higher than that, as you’re trying to compare them. So, I do think the margins are a little bit higher than A-Mark wholesale, let’s say. And if we can expand their retail and we can grow their retail, I don’t see any reason why we couldn’t — those incrementally increased revenue dollars at the DTC level wouldn’t be more in line or will be more in line with what our current DTC margins are.

Sy Jacobs: So one little follow-up question on that. You talked about sort of revenue synergies getting more wallet share or mind share of their purchases for A-Mark wholesale. Is there an opportunity for SilverTowne and Sunshine to become suppliers? I don’t know how much how many SilverTowne bars they sell in Hong Kong. But might that become like a part of their menu whereas it wasn’t before?

Greg Roberts: Yes. I mean, that’s a great synergy because as, we every week, we have plenty of SilverTowne product on the shelf and we have both wholesale and retail customers buying out of that inventory. It doesn’t cost us anymore to introduce LPM customers to that inventory. Now we will have to — we’ve already started on the process of logistics and we will have to stage product a little bit more in Hong Kong and we’ve been already doing that with Brink’s in Hong Kong. As well as I think it’s important to note that we entered into a supplier agreement with AMS about, around two months ago and as part of the negotiations and part of the test, we’ve had a supplier agreement with AMS and LPM, specifically, and we have already started out of our Vegas facility, we’ve started to ship product for LPM to their customers as well as we’ve started to finance some of their inventory in Hong Kong.

So, we’ve been operational with them for the last two months, so we’ve have been able to get a really good idea of what it takes and where we can improve LPM’s profitability. So, we have actually been working on that.

Sy Jacobs: And then last question on the transaction and in general. You’re paying almost all cash for this. Is the cost of capital missing out on 5% money market on $40 million or are there sort of like add, you said you’re not borrowing any money to do it, are there any other sort of costs that you need to subtract from the 2% or more margin and also vis a vis the buyback and how it relates to this? Can you spent something less than 50% of your cash flow this quarter and buying back stock does making this acquisition $40 million, make it any harder to return capital at that pace going forward?

Greg Roberts: Well, I think there’s a little bit of unknown in that question. I am super enthusiastic about this acquisition. I didn’t do this to not make 5% on money market. I think this business has the opportunity to really change and to really add to what A-Mark is doing in a market that we’re currently getting a very tiny fraction of the market share. So I know what this business has made historically, I know what it made in good times, I know what that revenue and that profitability is worth to us. And I think that if LPM was owned by A-Mark in 2021 or 2022 or even 2023, they would have made significantly more money than they did on their own. So I am looking at this as a home run. I am not looking at it as a bunt single.

Sy Jacobs: And then the buyback part of the question. Does it impinge your ability to buyback at this pace?

Greg Roberts: No. I think that management and the A-Mark Board, we spent quite a bit of time making sure this was the right size deal that would afford us the opportunity to continue to balance all of these things, whether it be dividend or whether it be stock buyback or whether it be other acquisitions in the future. I think this deal at this moment was sized very well, and it wasn’t that long ago that we made $50 million EBITDA in a quarter. As it relates to other opportunities, I think we’re very well positioned to keep doing everything when the opportunity presents itself and if we feel that the price of the stock is attractive for a buyback, we’re going to continue to buyback the stock. Obviously, we’ve announced here that we bought back 400,000 shares in the quarter. That’s a pretty big buyback against a 23 million share outstanding. So I think I’m pretty excited about continuing to do everything well.

Operator: And this does conclude our question-and-answer session. I’d now like to turn the call back over to Mr. Roberts for his closing remarks.

Greg Roberts: Thank you, Paul. Once again, thanks to all of our shareholders who joined the call today as well as the shareholders that aren’t on the call that will listen to it later recorded. I want to thank our employees for the dedication and commitment to our success and look forward to keeping you apprised of A-Mark’s progress in the future. Thank you for joining.

Operator: 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. These include statements regarding expectations with respect to the dividend declarations, the amount or timing of any future dividends, future macroeconomic conditions and demand for precious metals products, and the company’s ability to effectively respond to changing economic conditions, 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.

These include the following. With respect to the proposed transactions with AMS Holdings, the failure of the parties to agree on definitive transaction documents, the failure of the parties to complete the contemplated transactions within the currently expected timeline or at all, the failure to obtain necessary third-party consents or approvals and greater than anticipated costs incurred to consummate the transactions. Other factors that could cause actual results to differ include the failure to execute the company’s growth strategy, including the inability to identify suitable or available acquisition or investment opportunities, greater than anticipated costs incurred to execute the strategy, changes in the current international political climate, which historically has favorably contributed to demand and volatility in the precious metals markets, potential adverse effects of the current problems in the national and global supply chains, increased competition for the company’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, changes in custom and consumer demand and preferences for precious metal products generally, potential negative effects that inflationary pressure may have on our business, the inability of the company to expand capacity at SilverTowne Mint, the failure of our investee companies to maintain or address the preferences of their customer bases, general risks of doing business in the commodity markets and the strategic business, economic, financial political and governmental risks, and other risk factors described in the company’s public filings with the Securities and Exchange Commission.

The company undertakes no obligation to publicly update or revise any forward-looking statements. Listeners 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.