A-Mark Precious Metals, Inc. (AMRK) on Q1 2021 Results - Earnings Call Transcript
Operator: 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 the 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 our 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 for your questions.
Greg Roberts: Thank you very much. Hello everyone and thank you for joining our call today. I would like to welcome 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 pre-tax 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 complimentary 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 be 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 three business segments and growth strategy. Kathleen?
Kathleen Simpson Taylor: Thank you, Greg and good afternoon to everyone. As Greg mentioned, we closed our purchase of JMB acquiring the remaining 79.5% interest on March 19. As a result, our financial results for the three months ended March 31, 2021 included $68.4 million of revenue and $6.8 million of pre-tax 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 nine 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 the higher average selling prices of gold and silver.
Thor Gjerdrum: Thank you Kathleen. Looking at our key operational metrics for the third quarter and nine months 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% in the prior quarter. For the nine months period, we sold 1.9 7 million ounces of gold which was up 30% in 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 nine month period, we sold 78.6 million ounces of silver, which is a 29% from the same period last year. Wholesale trading ticket volume, which represents the total number of product orders processed by our trading desk, increased 51% to 44,966 tickets from the prior quarter but decreased 8% from Q3 of last year. In the nine months 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 is moved during the period. In the third quarter, our inventory turnover ratio is 3.7 which is a 3% from 3.6 in the prior quarter, and it's consistent with the inventory turnover ratio on Q3 last year. To the nine months 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 quarter totaled 1,571, an increase of 19% from the prior quarter and an increase in 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.
Greg Roberts: 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 big 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, that 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 mixing 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 men continue to enable our wholesale sales and ancillary services and direct to consumer segments to outperform. Our new equipment purchases at the SilverTowne Mint have expanded our overall capacity and production capabilities, which has allowed us to produce on average 500,000 ounces per week, over the last 30 days. It's important to note that the SilverTowne Mint has been able to operate 24/7 for quite some time now and is 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 pone silver bars. JMB has seen initial success selling these which are in high demand from the marketplace. SilverTowne is bringing another pizza oven online this quarter. We expect the two new furnaces will ultimately increase SilverTowne’s overall ounce outturn by at least 50% compared to a year ago. It's worth noting that these production numbers are based on demand and are a function of product quantities and the mix of products fabricated. So average weekly production volumes do not always provide a complete picture.
Operator: Thank you. We will now begin the question and answer session. Our first question comes from Tom Forte of DA Davidson. Please go ahead.
Tom Forte: Great. 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?
Greg Roberts: I mean, it's certainly on our list, we've talked about it. Michael's on the phone also and it's something that he and I talk about regularly. I mean we currently have a good list of initiatives and projects that we're focused on. We prioritize them and I would say that international expansion is near the top of the list. We believe that it's a pretty big step to try to recreate 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 and that we're familiar with, that we believe is a good operator that has local knowledge, and is versed in whatever area geographically. We decided 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.
Tom Forte: Great. And then for my follow up question. I wanted to look ahead, kind of the next 12 months. Certainly there's a lot of concerns about inflation. Historically how is that translated to interesting precious metals, especially gold and then how should we think about historically when you have inflationary concerns and high level of interest in all how that's translated to spreads?
Greg Roberts: 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 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 though 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 has been extremely good times for the precious metals business. It can't hurt us when millions of people are out there saying that I wore every day and we hear it and there's clearly a new level of concern and anxiety in our customer base as inflation gets talked about. We talked about this on our last call and I think this is the kind of environment that we always believe is going to be beneficial. I've never had an opportunity or a vertically integrated business with millions of retail customers that we acquired over the last six months to actually see what the effect is going to be. But my guess is it's going to be very positive.
Tom Forte: Great. So Greg, Thor, Kathleen, and Michael too thanks. And great quarter.
Greg Roberts: Thank you, and thanks for your report Tom. You've done a great job of learning the company fairly quickly.
Tom Forte: Thanks. Appreciate that.
Operator: Our next question comes from Craig Irwin of ROTH Capital Partners. Please go ahead.
Craig Irwin: Good evening and thank you for taking my questions. Can you maybe talk a little bit about the updated metrics for JM Bullion? When you announced the acquisition and completed the deal the metrics that you shared with everyone pre-dated, 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, etc, that you might be able to share with us?
Greg Roberts: 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.
Michael Wittmeyer: Yes, no problem. So at a high level the user acquisition remains very strong. We thought 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 good 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 AOB side, we're still largely in line with what we had in the acquisition numbers. So still a very heightened AOB versus our historical which was closer to $1,000.
Craig Irwin: Understood, thank you. 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 fold 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?
Greg Roberts: Sure, I think the $7.75 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 the way we normally reported 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 roadshow 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 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 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 have expressed interest in talking to us. So we said we would do it and we plan on continuing.
Craig Irwin: Great, thank you. 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 similar back end of the quarter strength. Can you confirm that we didn't see 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 and what we've been seeing not just this quarter, but over the last few quarters?
Greg Roberts: 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 kick back. So 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 of 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've 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 them how amazing to be but I would say that end of March was great going in to the new quarter and April is looking like and as we're seeing the numbers now, April is looking good and like we talked about earlier, I mean, the macro environment is setting up very good for us right now. There is, we have had the battle over the last four or five years basically a never ending up to the right stock market and this is supposed to be very good for us. And it's looking like it is where we're getting some shaking and some volatility in equities and some talk about inflation and higher rates. And the feeling that maybe we're not hearing everything that's going on that there's something out there that maybe from an inflation standpoint that it'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.
Craig Irwin: Understood. And then last question if I may. Feasible product availability. Can you maybe share what you feel your current positioning is? And will this continue to be of major strategic advantage for A-Mark over the coming quarters?
Greg Roberts: 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 that I would say probably 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 ride at max capacity. So we were 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 ongoing lack of supply in the 2020 Silver Eagles which has been great for us because we've had private mint product. We've been able to fill that lack of supply with our own product which you can see is benefited our bottom line tremendously.
Craig Irwin: Great. Well, thank you, and congratulations for really impressive results. Really impressive.
Greg Roberts: Thanks. Thanks Craig. Thanks for all your work on the company.
Operator: 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.
Greg Roberts: 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. 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 Capitol 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 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, A-Mark 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?
Operator: Thank you. Before we conclude today's call, I would like to provide A-Mark 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 any 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 gross strategy as planned, greater than anticipated costs incurred to execute the 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 businesses; 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 are variations thereof identify certain of such forward looking statements, which speak only as of the date on which they're 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'd like to remind everyone that a recording of today's call will be available for replay via link in the investor section of the company's website. Thank you for joining us today for A-Mark's earnings call. You may now disconnect.
