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?
See also 15 Navies with the Most Submarines in the World and 40 Richest Countries in the World by Per Capita Net Worth.
To continue reading the Q&A session, please click here.