A-Mark Precious Metals(US:AMRK)2024-02-07 16:00PART I FINANCIAL INFORMATION This section provides comprehensive financial data, including statements, management's analysis, market risk disclosures, and control procedures Financial Statements This section presents the unaudited condensed consolidated financial statements for the quarterly period ended December 31, 2023, including balance sheets, income statements, stockholders' equity, and cash flows, with detailed notes Condensed Consolidated Balance Sheets (in thousands) | | Dec 31, 2023 (unaudited) | Jun 30, 2023 | | :--- | :--- | :--- | | Total current assets | $1,340,281 | $1,267,191 | | Total assets | $1,623,858 | $1,545,571 | | Total current liabilities | $719,660 | $924,061 | | Total liabilities | $1,038,478 | $945,178 | | Total stockholders' equity | $585,380 | $600,393 | Condensed Consolidated Statements of Income (in thousands) | | Three Months Ended Dec 31, 2023 | Three Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2023 | Six Months Ended Dec 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $2,078,815 | $1,949,705 | $4,563,433 | $3,850,056 | | Gross profit | $46,041 | $63,969 | $95,446 | $140,561 | | Net income | $13,961 | $33,597 | $32,944 | $78,834 | | Net income attributable to the Company | $13,766 | $33,481 | $32,593 | $78,606 | | Diluted EPS | $0.57 | $1.35 | $1.34 | $3.18 | Condensed Consolidated Statements of Cash Flows (in thousands) | | Six Months Ended Dec 31, 2023 | Six Months Ended Dec 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($101,667) | ($48,518) | | Net cash (used in) provided by investing activities | ($10,659) | $15,080 | | Net cash provided by financing activities | $101,503 | $68,154 | | Net (decrease) increase in cash | ($10,823) | $34,716 | Note 1. Description of Business This note details the company's operational structure across its wholesale, direct-to-consumer, and secured lending segments - The company operates through three reportable segments: - Wholesale Sales & Ancillary Services: A full-service precious metals business offering gold, silver, platinum, and palladium, along with services like financing, storage, and logistics. This segment includes subsidiaries AMTAG, TDS, AMGL, and the Silver Towne Mint (AMST) - Direct-to-Consumer: Operates through subsidiaries JM Bullion (JMB) and Goldline, providing a wide array of precious metals products to retail customers via e-commerce websites and direct marketing - Secured Lending: Conducted through Collateral Finance Corporation (CFC), which originates and acquires commercial loans secured primarily by bullion and numismatic coins222324 Note 3. Assets and Liabilities, at Fair Value This note outlines the company's assets and liabilities measured at fair value, primarily classified as Level 1 Assets and Liabilities Measured at Fair Value on a Recurring Basis (in thousands, as of Dec 31, 2023) | | Level 1 | Level 2 | Level 3 | Total | | :--- | :--- | :--- | :--- | :--- | | Total assets, valued at fair value | $1,154,883 | $— | $5,300 | $1,160,183 | | Total liabilities, valued at fair value | $571,736 | $— | $— | $571,736 | - The vast majority of assets and liabilities measured at fair value are classified as Level 1, indicating their values are based on quoted prices in active markets for identical instruments. This includes inventories, derivative assets/liabilities, and product financing arrangements. A Level 3 asset of $5.3 million represents an option to purchase additional interest in a long-term investment818384 Note 5. Secured Loans Receivable This note provides a breakdown of the company's secured loan portfolio, highlighting its high-quality loan-to-value ratios Secured Loans Receivable Breakdown (in thousands) | Loan Type | Dec 31, 2023 | Jun 30, 2023 | | :--- | :--- | :--- | | Secured loans originated | $85,055 | $68,630 | | Secured loans acquired | $21,510 | $31,990 | | Total | $106,565 | $100,620 | - As of December 31, 2023, 93.3% of secured loans had a loan-to-value (LTV) ratio of less than 75%, indicating a high-quality loan portfolio. The company had no loans with an LTV ratio exceeding 100% and recorded no allowance for credit losses9899 Note 6. Inventories This note details the composition of the company's inventory, including held for sale, repurchase arrangements, and product financing Inventory Components (in thousands) | Inventory Type | Dec 31, 2023 | Jun 30, 2023 | | :--- | :--- | :--- | | Inventory held for sale | $343,512 | $437,670 | | Repurchase arrangements with customers | $220,367 | $181,751 | | Borrowed precious metals | $24,215 | $21,642 | | Product financing arrangements (Restricted) | $518,613 | $335,831 | | Total Inventory | $1,110,350 | $981,643 | Note 12. Derivative Instruments and Hedging Transactions This note explains the company's use of derivative instruments to hedge precious metals price risk - The company uses derivative instruments, such as forward and futures contracts, to hedge its market exposure to precious metals prices. This is not for speculative purposes but to mitigate the price risk of holding inventory118119 Net Precious Metals Subject to Commodity Price Risk (in thousands) | | Dec 31, 2023 | Jun 30, 2023 | | :--- | :--- | :--- | | Precious metal subject to price risk | $1,015,063 | $941,845 | | Total market value of derivative financial instruments | $1,012,452 | $938,233 | | Net precious metals subject to commodity price risk | $2,611 | $3,612 | Note 15. Financing Agreements This note describes the company's credit facilities and product financing arrangements, key sources of liquidity - The company's primary credit line is the Trading Credit Facility, with a total revolving commitment of up to $350.0 million, maturing in September 2025. As of December 31, 2023, borrowings totaled $298.0 million154155 - In December 2023, the AMCF Notes, which had an aggregate principal amount of $100.0 million, were repaid in full. The issuing entity, AMCF, is now inactive156215 - Product financing arrangements, a key source of liquidity, increased to $518.6 million as of December 31, 2023, from $335.8 million as of June 30, 2023160 Note 17. Stockholders' Equity This note details changes in stockholders' equity, including dividend declarations and share repurchase activities - During the six months ended December 31, 2023, the company declared a special dividend of $1.00 per share and two regular quarterly dividends of $0.20 per share165 - The company repurchased 611,360 shares for $16.9 million during the six months ended December 31, 2023. The board amended the share repurchase program to authorize a total of 2.0 million shares for repurchase, with 1,052,905 shares remaining authorized as of December 31, 2023166 Note 18. Customer and Supplier Concentrations This note identifies significant customer concentrations in terms of revenue and accounts receivable - For the six months ended December 31, 2023, one customer, HSBC Bank, accounted for 23.1% of the company's total revenues179 - As of December 31, 2023, two customers, Bank of America and Morgan Stanley, accounted for 15.4% and 12.8% of total accounts receivable, respectively181 Note 20. Subsequent Events This note discloses significant events occurring after the reporting period, including a planned acquisition - On February 1, 2024, the company entered into a non-binding letter of intent for three transactions, including the acquisition of 100% of LPM Group Limited, a precious metals dealer in Asia, for upfront consideration of $41.5 million plus potential earn-outs203 Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting revenue increases but declines in gross profit and net income due to lower premium spreads and reduced sales volume of gold and silver ounces, particularly in the Direct-to-Consumer segment, along with discussions on liquidity and capital resources Consolidated Results Overview - Three Months Ended Dec 31 (in millions) | Metric | 2023 | 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $2,078.8M | $1,949.7M | $129.1M | 6.6% | | Gross Profit | $46.0M | $64.0M | ($17.9M) | (28.0%) | | Net Income | $13.8M | $33.5M | ($19.7M) | (58.9%) | | Gold Ounces Sold | 450,000 | 565,000 | (115,000) | (20.4%) | | Silver Ounces Sold | 26,575,000 | 38,137,000 | (11,562,000) | (30.3%) | Consolidated Results Overview - Six Months Ended Dec 31 (in millions) | Metric | 2023 | 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $4,563.4M | $3,850.1M | $713.4M | 18.5% | | Gross Profit | $95.4M | $140.6M | ($45.1M) | (32.1%) | | Net Income | $32.6M | $78.6M | ($46.0M) | (58.5%) | | Gold Ounces Sold | 945,000 | 1,194,000 | (249,000) | (20.9%) | | Silver Ounces Sold | 56,953,000 | 74,054,000 | (17,101,000) | (23.1%) | Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, primarily commodity price risk, foreign exchange risk, and interest rate risk, noting that the company substantially hedges its inventory and open commitments against commodity price fluctuations - The company's primary market risk is from fluctuations in precious metals commodity prices. This risk is managed through a policy of substantially hedging its inventory position and open commitments using derivative instruments like forward and futures contracts348 - Foreign exchange risk is managed using foreign currency forward contracts with maturities generally less than one week, and the company does not believe this exposure is material350 - Interest rate risk exposure relates mainly to the variable-rate Trading Credit Facility and product financing arrangements. The company does not use derivatives to hedge this risk but manages it by adjusting rates on its own lending products351 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of December 31, 2023, with no material changes in internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report352 - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting353 PART II OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and required exhibits Legal Proceedings The company is involved in various legal proceedings incidental to its business but does not expect these to have a material adverse impact on its financial position, results of operations, or cash flows - The company states that based on current information, it does not expect that ongoing legal proceedings or claims will have any material adverse impact on its future consolidated financial position, results of operations, or cash flows354 Risk Factors This section outlines significant risks that could adversely affect the company's business, including dependence on market trends and global events influencing precious metals demand, reliance on its credit facility, potential supply chain disruptions, competition, and various regulatory risks - The business is heavily dependent on its Trading Credit Facility for liquidity to purchase metals and finance operations. An inability to access these funds could severely limit business activities359 - Profitability is influenced by global and macroeconomic events. While recent volatility has been beneficial, a return to more normalized, less volatile markets could reduce demand and profitability, particularly in the direct-to-consumer business357371 - The company faces significant competition in both its wholesale and direct-to-consumer segments from other precious metals firms, banks, and online retailers, some of whom have greater resources377384 Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase activity for the quarter ended December 31, 2023, including the board's amendment to the share repurchase program Share Repurchase Activity for the Quarter Ended Dec 31, 2023 | Period | Total Shares Purchased | Average Price Per Share | | :--- | :--- | :--- | | Oct 2023 | 128,732 | $28.20 | | Nov 2023 | 239,393 | $25.93 | | Dec 2023 | 71,967 | $28.36 | - In November 2023, the board amended the share repurchase program, resulting in a total of 2.0 million shares authorized for repurchase. As of December 31, 2023, 1,052,905 shares remain available for repurchase under the program413 Exhibits This section lists the exhibits filed with the Form 10-Q, including XBRL data files, an amendment to the credit agreement, and certifications by the CEO and CFO as required by the Sarbanes-Oxley Act