A-Mark Precious Metals, Inc. (NASDAQ:AMRK) Q4 2023 Earnings Call Transcript

A-Mark Precious Metals, Inc. (NASDAQ:AMRK) Q4 2023 Earnings Call Transcript August 31, 2023

A-Mark Precious Metals, Inc. misses on earnings expectations. Reported EPS is $1.71 EPS, expectations were $1.95.

Operator: Good afternoon, and welcome to the A-Mark Precious Metals Conference Call for the Fourth Quarter and Fiscal Year ended June 30, 2023. My name is John, and I will be your operator this afternoon. Before this call, A-Mark issued its results for the fourth quarter and fiscal year 2023 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 — and 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 we reported in our earnings release, fiscal 2023 marked a record year of strong financial and operational performance for A-Mark, further demonstrating the strength of A-Mark’s industry-leading, fully integrated precious metals platform. For the full fiscal year, we reported $156.4 million of net income and diluted EPS of $6.34 per share. Our full year gross profit grew 13% year-over-year, and we delivered record levels of EBITDA of $225 million and generated a 29% return on equity for the year. Our Direct-to-Consumer or DTC segment continues to contribute significantly to our overall financial performance, generating approximately 57% of our consolidated gross profit for the year.

New DTC customers grew by 46% year-over-year, highlighting the success of our strategic acquisitions and organic customer growth, including the acquisitions of BGASC and BullionMax, which further expanded our DTC customer base. During the year, we added minority interests in U.K.-based Atkinsons Bullion & Coin and Texas Precious Metals to our investment portfolios. We also bolstered our minting operations by investing in the expansion of our SilverTowne Mint facility in Indiana, which now has the capacity to produce over 1 million ounces of fabricated silver per week. SilverTowne also achieved ISO 9000 certification during the year, reaffirming the Company’s reputation as a leading manufacturer of quality bullion products. Now I’ll turn the call over to our CFO, Kathleen Simpson-Taylor, and she will walk you through our financials in more detail.

Then, A-Mark’s President, Thor Gjerdrum, will discuss our key operating metrics. Afterwards, I will provide a further update on our business and growth strategy ahead as we progress into fiscal 2024. Kathleen?

Kathleen Simpson-Taylor: Thank you, Greg, and good afternoon, everyone. Our revenues for fiscal Q4 2023 increased 51% to $3.16 billion from $2.09 billion in Q4 of last year due to an increase in gold and silver ounces sold and higher average selling prices of gold and silver. The DTC segment contributed 19% of the consolidated revenue in fiscal Q4 2023 compared to 23% in Q4 of last year. Revenue contributed by JM Bullion, JMB, represented 17% of the consolidated revenues for fiscal Q4 of 2023 compared to 21% in Q4 of last year. For the full fiscal year, our revenues increased 14% to $9.32 billion from $8.16 billion in the prior fiscal year. Excluding a $1.2 billion increase in forward sales, our revenues increased by $2.6 million, driven primarily by an increase in silver ounces sold and higher average selling prices of gold, partially offset by a decrease in gold ounces sold and lower average selling prices of silver.

The DTC segment contributed 21% and 26% of the consolidated revenue in fiscal year 2023 and 2022, respectively. Revenue contributed by JMB represented 19% of the consolidated revenues for fiscal year 2023 compared to 24% in the prior year. Gross profit for fiscal Q4 2023 increased 16% to $78.6 million or 2.49% of revenue from $67.8 million or 3.24% of revenue in Q4 of last year. The increase in gross profit was due to higher gross profits earned from the Wholesale Sales and Ancillary Services and Direct-to-Consumer segments. Gross profit contributed by the DTC segment represented 60% of the consolidated gross profit in fiscal Q4 2023 compared to 57% in the same year-ago period. Gross profit contributed by JMB represented 49% of the consolidated gross profit in fiscal Q4 2023 compared to 46% in Q4 of last year.

For the full fiscal year, gross profit increased 13% to $294.7 million or 3.16% of revenue from $261.8 million or 3.21% of revenue in the prior fiscal year. Excluding a $1.2 billion increase in forward sales, which have a negligible impact to gross profit, the gross profit percentage increased to 4.27% from 3.79% in the prior fiscal year. The increase in gross profit was due to higher gross profits earned from the Wholesale Sales and Ancillary Services and DTC segments. Gross profit contributed by the DTC segment represented 57% of the consolidated gross profit in fiscal 2023 compared to 56% in the prior fiscal year. JMB contributed 49% to the consolidated gross profit for fiscal 2023 compared with 46% in the prior year. SG&A expenses for fiscal Q4 2023 increased 10% to $22.8 million from $20.7 million in Q4 of last year.

The increase was primarily due to an increase in compensation expense, including performance-based accruals of $1.3 million, higher advertising costs of $1.1 million, higher information technology costs of $0.9 million and higher consulting and professional fees of $0.4 million, partially offset by lower insurance costs of $2.1 million. For the full fiscal year, SG&A expenses increased 11% to $85.3 million from $76.6 million in fiscal year 2022. The increase was primarily due to an increase in compensation expense, including performance-based accruals of $6.4 million, higher advertising costs of $3.5 million, an increase in information technology costs of $1.7 million, partially offset by a decrease in insurance costs of $1.7 million and lower consulting and professional fees of $2 million.

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Depreciation amortization expense for fiscal Q4 2023 decreased 15% to $2.7 million from $3.2 million in Q4 of last year. The decrease was primarily due to a decrease in amortization of acquired intangibles related to JMB. For the full fiscal year, depreciation and amortization expense decreased 54% to $12.5 million from $27.3 million in the prior year. The decrease was primarily due to a $14.9 million decrease and amortization of acquired intangibles related to JMB. Interest income increased 7% to $6.1 million from $5.7 million in Q4 of last year. The increase in interest income was primarily due to higher finance product income from our Wholesale Sales and Ancillary Services segment, which was partially offset by a decrease in interest income earned by our Secured Lending segment.

For the full fiscal year, interest income increased 2% to $22.2 million from $21.8 million in fiscal year 2022. The increase was primarily due to higher finance product income from our Wholesale Sales and Ancillary Services segment, partially offset by a decrease in interest income earned by our Secured Lending segment. Interest expense for fiscal Q4 2023 increased 57% to $8.9 million from $5.7 million in Q4 of last year. The increase in interest expense was primarily driven by a $2.4 million increase associated with our trading credit facility, primarily due to an increase in interest rates, and notes payable, including amortization of debt issuance costs. In addition, a $0.8 million increase related to product financing arrangements. For the full fiscal year, interest expense increased 43% to $31.5 million from $22 million in fiscal year 2022.

The increase was primarily driven by $7.2 million associated with our trading credit facility, primarily due to an interest rate increase and notes payable, including amortization of debt issuance costs, $2.6 million related to product financing arrangements and $0.6 million in interest associated with liabilities on borrowed metals. And this was partially offset by a decrease of $0.9 million of loan servicing fees. Earnings from equity method investments in Q4 2023 increased 105% to $5.3 million from $2.6 million in the same year-ago quarter. The increase reflects our new investments made during the year as well as the higher percentage ownership in our existing equity method investments in comparison to the prior fiscal year. For the full fiscal year, earnings from equity method investments increased 82% to $12.6 million from $6.9 million in fiscal year 2022.

The increase of $5.7 million was primarily due to the additional 40% ownership interest in Silver Gold Bull, which was acquired in June 2022, as well as earnings from our other equity method investments. Net income attributable to the Company for the fourth quarter of fiscal 2023 totaled $41.8 million or $1.71 per diluted share. This compares to net income attributable to the Company of $37.3 million or $1.52 per diluted share in Q4 of last year. For the full fiscal year, net income attributable to the Company totaled $156.4 million or $6.34 per diluted share. This compares to net income attributable to the Company of $132.5 million or $5.45 per diluted share in the prior fiscal year. Adjusted net income before provision for income taxes, a non-GAAP financial performance measure which excludes acquisition expenses, amortization and depreciation for Q4 fiscal 2023 totaled $59.1 million, an increase of 17% compared to $50.6 million in the same year-ago quarter.

Adjusted net income before provision for income taxes for fiscal 2023 totaled $216 million, an increase of 11% compared to $195 million in the prior fiscal year. EBITDA, a non-GAAP liquidity measure, for Q4 fiscal 2023 totaled $61.8 million, a 23% increase compared to $50.3 million in Q4 of fiscal 2022. EBITDA for fiscal 2023 totaled $225 million, a 16% increase compared to $193.9 million in the prior fiscal year. Turning to our balance sheet. At fiscal year-end, we had $39.3 million of cash compared to $37.8 million at the end of fiscal year 2022. Our tangible net worth at the end of the fiscal year was $436.8 million, up from $321.6 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 July. The Board of Directors has also declared the next regular quarterly cash dividend, which is payable on October 24, 2023, to stockholders of record as of October 10, 2023. In addition, the Board of Directors has declared a nonrecurring special cash dividend of $1 per common share, which will be paid on September 26, 2023, to stockholders of record as of September 12, 2023. 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 fiscal fourth quarter and full year 2023, we sold 814,000 ounces of gold in Q4 fiscal 2023, which was up 27% from Q4 of last year and up 24% from the prior quarter. For the full fiscal year, we sold 2.7 million ounces of gold, which was relatively unchanged from fiscal 2022. Sorry, one correction. I said 814,000 ounces of gold, that was silver, 814,000 ounces of silver. We sold 45.3 million ounces of silver in Q4 fiscal 2023, which was up 20% from Q4 of last year and up 23% from the prior quarter. For the full fiscal year, we sold 156.2 million ounces of silver, which is up 18% from fiscal 2022. 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 90,400 in Q4 fiscal 2023, which was up 85% from Q4 of last year and up 40% from the prior quarter.

Approximately 32% of the new customers in Q4 fiscal 2023 were attributable to the acquired customer list of BullionMax in June 2023. For the full fiscal year, the number of new customers in the DTC segment was 335,300, which is up 46% from the prior year. Approximately 31% of the new customers in fiscal 2023 were attributable to the acquired customer list of BGASC and BullionMax in October ’22 and June 2023, respectively. The number of total customers in the DTC segment at the end of fiscal 2023 was approximately 2.3 million, which is a 17% increase from the prior year. The year-over-year increase in total customers was due to organic growth of our GMV customer base as well as the acquired customer list of BGASC and BullionMax in October 2022 and June 2023, respectively.

The DTC segment average order value, which represents the average dollar value of products, excluding accumulation product program orders delivered to DTC segment customers during Q4 fiscal 2023 was $3,288, which was up 20% from Q4 of last year and up 34% from the prior quarter. For the full fiscal year, our DTC average order value was $2,606, which is up 3% from fiscal 2022. For the fiscal fourth quarter, our inventory turnover ratio was 3.2, which was a 19% increase from 2.7 in Q4 of last year and a 33% increase from 2.4 in the prior quarter. For the full fiscal year, our inventory turnover ratio was 10.5, which is down 20% from the same year-ago period. Finally, the number of secured loans at the end of June totaled 882, a decrease of 8% from March 31, 2023, and a decrease of 61% from June 30, 2022.

The dollar value of our loan portfolio at the end of June 2023 totaled $100.6 million, which is up 4% from the end of March, but down 20% from June 30, 2022. I apologize, one correction on my ounce statements. We sold 814,000 ounces of gold in Q4 fiscal 2023, and we sold 2.7 million ounces of silver in — for the full — excuse me, 2.7 million ounces of gold for the full fiscal year. That concludes my prepared remarks. I will now turn it over to Greg for closing remarks. Greg?

Greg Roberts: Thank you, Thor and Kathleen. Looking ahead to fiscal ’24, we’ve seen a bit of premium compression since we commenced our new fiscal year, with the headwinds continuing from June into July. August has been a bit more active, and we are optimistic that this will continue into September. We continue to evaluate opportunities to further expand our geographic presence and market reach to create shareholder value. Our strategic focus remains on opportunities that will align with our business model and will create synergies with A-Mark’s integrated platform, including our reliable access to supply and successful logistics footprint, along with strong customer relations. We will continue to invest in our minting and logistics operations to further increase capacity and enhance our operations.

We remain optimistic that our diversified and proven business model will allow us to sustain profitability and realize growth over the long term. That concludes my prepared remarks. Operator?

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Q&A Session

Operator: [Operator Instructions] Now our first question comes from Thomas Forte with D.A. Davidson. Thomas, please proceed.

Thomas Forte: Greg and team, congrats on the quarter and year, both were amazing. So two questions. I’ll go one at a time. Greg, I consider A-Mark one of the most well-run companies I follow. You, Thor and everyone do a fantastic job. You had a management change recently at JM Bullion, with Robert replacing Michael. How should investors think about that change?

Greg Roberts: Well, I think it’s a positive. Rob has proven over the last 10-plus years that he’s been involved with JM Bullion that he has a grasp of all parts of the Company. He’s done a great job, and he’s — in my mind, he’s the right person going forward. Michael is still a tremendous asset to the Company. He’s on the Board. He and I still consult weekly. And his — his efforts and his focus for his expertise is, I feel like we’re going to continue to have that — the benefit of his abilities. Rob has been running the digital marketing and the client acquisition part of JM Bullion for a while. And I believe that Rob is the right person for the right person for the job. And Michael is still a part of A-Mark and still a part of JM Bullion, so I think it’s a positive. And obviously, the move was something that I felt was the right move, and I’m very confident in the decision.

Thomas Forte: Great. And then for my second question, you announced another onetime special dividend. Can you give your current thoughts on capital allocation, including dividends, most regular quarterly and onetime, strategic M&A and investing back in the business?

Greg Roberts: Sure. Obviously, everybody can see we had a very strong fourth quarter and an even better full year, which is one of the main drivers. And when we look at capital allocation and what we — where we put the money and what we do with it, the performance, as we’ve talked about before, certainly justified the special dividend. I will say that we are committed to the regular dividend, as well as always keeping in mind how the next three to six months looks as it relates to acquisitions, inventory opportunities and other factors that we look at. I would say that we’re comfortable and optimistic that our pipeline for acquisitions right now is very good. There’s a couple of things we’re looking at. But the strength of last year and the strength of the quarter allowed us to continue and have the special dividend again this year.

As we’ve said before, as I’ve said before, I look to where we think we can get the best return. If we think we have excess capital that we can’t put to use, we’ll return it to the shareholders. And I think that continuing with the same special dividend that we had last year was indicative of the year’s performance. And I feel like right now, our capital allocations are exactly where I want them to be, and I think we are in a great position going forward into the new fiscal year, that this should be a fairly active year for us in new opportunities.

Operator: The next question comes from Lucas Pipes with B. Riley. Please proceed.

Lucas Pipes: Thank you very much, operator. I would like to add my congratulations on a very strong quarter. Well done. Greg, I wanted to touch on your comments in the prepared remarks that the market softened a bit here during your fiscal first quarter. Could you elaborate kind of what changed in your opinion? Is it seasonal? Is it a summer lull? How do you describe the market today and a little bit more color versus where you ended the year?