Q1 2021 A-Mark Precious Metals Inc Earnings Call
Good afternoon, and welcome to the a mark precious metals conference call for the fiscal.
Fiscal first quarter ended September Thirtyth 2020.
Im is Jerry and I will be your operator this afternoon.
For this call a mark issued its results for the fiscal first quarter 2021 in the press release, which is available in the Investor Relations section of the company's website at Www Dot <unk> Dot com.
You can find the link to the Investor Relations section at the top of the home page joining us today. Our today's call are eight marks CEO Greg Roberts.
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Let's see so Kathleen Simpson Taylor following following their remarks well.
Open the call for your questions and 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 will be available for replay via a link available in the Investor Relations section of our remarks website now I'd like to turn the call.
All over to you Mark CEO Mr., Greg Roberts. Please go ahead Sir.
Thank you Jerry good afternoon to everyone. Thanks.
Thanks for joining us on our call today.
I'd like to start my remarks by thanking our employees and shareholders for their continued support.
As you can see from our earnings release issued today, the first quarter of fiscal 2021 market impressive start to our new fiscal year.
During Q1, we continue to build on the operating and financial momentum we established in the second half of last fiscal year to further capitalize on the unprecedented volatility in the precious metals market.
The continued volatility combined with significant demand for precious metals and supply constraints has enabled us to generate record financial results in this quarter.
We delivered strong sequential improvements in all of our key financial metrics, including a 12% increase in revenue at.
29% increase in both gross profit and net income compared with last quarter.
In fact Q1 marked the most profitable quarter in earmarks history, with net income of 23.1 million or $3.09 per diluted share.
This resulted in a 20.2 return on equity for the quarter compared with 18% as I reported last quarter.
The strong strong results reflected the continued benefits and scalability of our business model.
As I mentioned previously the strategic investments we've made over the last several years to expand our capacity and operational capabilities.
Ideally positioned a mark to capitalize on the current market conditions, while increasing our market share and driving our growth over the long term.
I will now turn the call over to our CFO Kathleen Simpson Taylor to discuss our financial results for the first half.
Quarter of 2021 in more detail.
Please take it away.
Thank you, Greg and good afternoon.
Ladies and gentlemen, please hold.
I mean, it just doesn't work.
[noise] silver write downs on the air.
Ladies and gentlemen, very sorry for the delay Ms Simpson Taylor, you're ready to go. Please Oh. Please go ahead now okay.
Okay.
Right.
So just real.
Yeah. This this is really ready to go.
Thank you Jerry.
[noise] good afternoon, everyone.
Our revenues for fiscal Q1, 2021 increased 26% to 1.87 billion from 1.48 billion in Q1 of last year. The increase in revenues was primarily due to an increase in the total amount of gold and silver ounces sold and higher so.
Selling prices of gold and silver gross.
Gross profit for fiscal Q1, 2021 increased 333% to 36.1 million or 1.94% of revenue from eight point threemillion or 0.56% of revenue in Q1 of last year the increase in gross profit.
Primarily due to higher gross profits from the wholesale trading and ancillary services and the direct sales segments.
SGN a expenses for fiscal Q1, 2021 increased 21% to 10 million from 8.3 million in Q1 of last year. The increase was primarily due to increases in compensation expense, including performance based accruals of 1.8 million.
Ian and computer software expense of 0.2 million, which were partially offset by decreases in operating expenses of 0.2 million associated with our direct sales segment and depreciation and amortization expense of 0.1 million.
Interest income for fiscal Q1, 2021 decreased 31% to $4 million from $5.8 million in Q1 of fiscal 2020.
The aggregate decrease was primarily related to lower interest income earned by our secured lending segment, partially offset by higher other finance product income.
Interest expense for fiscal Q1, 2021 decreased 17% to 4.3 million from 5.1 million in Q1 of last year.
The decrease was primarily due to lower interest rates related to our trading credit facility and lower loan servicing fees.
These were partially offset by increases in interest expense related to our liabilities on borrowed metals and product financing arrangements.
For the first quarter of fiscal 2021, our net income totaled 23.1 million or $3.09 per diluted share, which was a significant improvement from net income of $128000 or two cents per diluted share in Q1 of last year.
Now turning to our balance sheet.
At quarter end, we had 24.4 million of cash compared to 52.3 million at the end of fiscal year 2020.
Our tangible net worth at the end of the quarter was 104.9 million up from 91 million at the end of the prior quarter.
I'm pleased to announce that our board of directors approved a second nonrecurring special dividend of $1.50 cents per common share. This second nonrecurring special dividend will be paid on or about November thirtyth 2020 to stockholders of record as of November 20, Threerd two.
2020.
That completes my financial summary, now I will turn the call over to Soar, who will provide an update on our key performance metrics Thor.
Thank you Kathleen what did or acute operational measure for the first quarter 2021.
Sold 721000 ounces of gold in Q1, which was a 24% from Q1 of last year and up 8% from the prior quarter, which resulted in a strong quarter for gold sales.
We sold 24.2 million ounces of silver in Q1, which was up 16% from Q1 of last year.
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Well filtered in city volume or certain conducted which represents the total number of profit orders process for our children guys increased 30% to 34300 tickets from the prior quarter and decreased 3% from Q1 of last year.
While the ticket volume decreases compared to Q1 of last year, the average order size, particularly hard core.
Third you measured reevaluated as inventories are which is a measure of how quickly inventory of move during the period for the first quarter. Our inventory turnover ratio was 5.0, which was up 11% from 4.5 in the prior quarter and up 14% from 4.4 in Q4 last year.
Finally, the number of secured loans during the quarter to 1125, an increase of 57% from the prior quarter and a decrease of 68% from Q1 of last year. The dollar value of our loan portfolio at the end of the quarter totaled $84.2 million, we look forward to 2% from fiscal year end.
44% from Q1 of last year, we grew the number of loans increased during periods of rising precious metals.
Prices and do crews during periods of declining versus those prices in the past few quarters as lower prices have rebounded we were through growth in our CST loan portfolio.
That concludes my prepared remarks, I'll now turn it back over to Greg talk about the progress we made on our key evolution bird. Thank.
Thank you for [noise].
In addition to delivering our strong financial results and key operational metrics, we continue to execute on our operational plan to enhance organizational processes improve efficiencies and expand our capacity.
All while all of our business segments have generated profitable results in Q1.
Both our wholesale trading services and direct sales segments continued to exceed our plans.
We are encouraged by the demand we've seen from both the wholesale and retail channels and the related performance of these segments.
Our efforts to manage costs and implement effective marketing strategies for gold line, which drives our direct sales segment have proven to be very successful as evidenced by the 3.6 million of net income earned by this segment in Q1.
I would also like to highlight the Silvertowne mint, which provides us with enhanced price stability and sustained consistent supply during supply constrained periods like we saw in Q1.
Silver towns weekly production rose to 500000 ounces per week.
We continue to invest in new machinery, and operational efficiencies, which will increase the men's overall capacity and further enhance product quality over the coming months.
As noted store and as Stuart mentioned, we've seen a nice rebound in the loan portfolio of our secured lending segment. Both in terms of the number and the dollar value of the loans.
Over the last quarter, we've continued to experience a steady increase in loans.
The strategic investments we've made over the last several years to expand capacity and operational capabilities have yielded exceptional financial results.
Looking ahead, the current economic certain uncertainties give us optimism for fiscal 2021.
As we seek to capitalize on future opportunities.
We continue to believe that our favorable competitive.
Competitive position industry, leading platform robust customer base and proven business model will help drive growth and profitability in the years ahead.
Operator, please provide the appropriate instructions for the Q and a.
Thank you well now begin the question and answer session anyone wishes to ask a question a plus press star one on the telephone keypad, if youd like to remove yourself from the question queue. You May press star two.
I'd like to remind people who have speaker equipment to please take your bones off the speakers before pressing the star keys.
One moment, please while we poll for questions.
The first question is from Craig Irwin Roth Capital Partners. Please go ahead Sir.
Good evening and thanks for taking my questions.
So I wanted to ask you guys about the increase in average ticket size.
This may be related to some of the shifts that you're seeing between gold and silver or is there something else maybe going on the customer base that.
Might be fundamental that we should look at is.
A bit of a longer term shift.
I would say that it's probably not anything related to longer term, it's related a little bit more in my opinion to market volatility and I think when you have very active markets, where we have large swings in a given day.
Like we had I.
I think it was on.
What we had.
Just in the last two weeks we've had.
About $100 swing in gold and we've had almost a $2 swing and silver.
Over short periods of time, I think I think our customers may tend to take place a little bit bigger orders and they may tend to call the desk and consolidate orders as opposed to in in our quieter times you see people taking their time just on our portal and they may place an order and then they place.
Another order they may place 10 orders in a day, but in a more volatile time I believe they they may place one consolidated order. So I think it is the factors vary that contribute to it but for the most part.
The live orders, we take on the phone are larger than the the portal trades.
Understood understood. So last quarter, one of the one of the really good things.
In this environment what's that.
You'd reach profitability on your Internet sales business I don't think people sort of appreciated the scalability of that platform.
Particularly for retail buyers retail investors.
Can you update us on the profitability, so where we stand now are you seeing a good velocity.
With that customer base.
I'm not it's that's a.
You know.
A broad question, but I'll try to I'll try to these specific in what what I think is important I think that first off in our retail segment, which which is gold line as you can see from the profitability. The the 3.6 million in the quarter that business has been very active up too and so.
It's the election, we've we've seen.
Good activity and I will say that the the internet leads that we're generating in that business are better than ever.
And when I say leads generate on the Internet. It's it's our marketing team, that's that's going out with FCO or or targeted marketing and we have seen very very good results and a good return on equity on our Internet marketing plan this quarter.
As it relates to.
Internet sales in general direct Internet sales, which would attribute to a few of our and invest investments that we have an internet companies those.
Those businesses were also very active in the quarter were reporting and I would say that pretty much.
Whatever precious metals retail platform.
Your your functioning on whether we're operating at or it's our customers operating it.
This quarter was was very very good.
And you know the volatility.
That we've seen.
Is continuing which is which is good for us.
Thank you for that.
So the rebuilding of the CFC loan portfolios actually making great progress. Yeah. You know 82.4 million is there is a really nice 30%, 29% sequential increase.
One of the things when we see is the average loan size now seems to be up quite a bit over where you were a year ago.
Can you maybe explain sort of what's going on there. It's that's.
Influenced by the same things that has the average ticket size going up or is there. Some other some other trend in there that's causing the new loans originated to skewed larger.
I think as we've said before and you know what we had happened in March or April of 2020, when we had a flash drop in the price of silver and gold.
That you know will almost always caused us to lose loans.
And depending on how drastic the drop.
We will lose more loans and if it's a mild drop I think that you know since that moment. If you just just look at the numbers I think you know in March we had silver dropped to $12 12, 50, an ounce for only a few hours and then it bounced back and now we have silver at at $24. So what.
It happens when when prices move up is customers tend to.
Buy more when they think the market is going up and when they when you have significant material moves up we tend to see our loans get bigger.
I also think that that when customers have equity in metals, they tend to add on and they sometimes add to their add to their loan or add to their to their mettle of their collateral.
So I think that what we're seeing is natural and I think it's it's in line with what we expected I think we indicated on the last call that.
Just like we had a flash drop.
We expected the book to probably come back a little bit faster than it had in the last time, we had a drop and we we believe that has occurred.
Occurred and we feel good momentum right now in our loan book, So I am and what we've seen so far in the first the first month and a half of Q2 here is we've continued to see momentum in the loan book So.
You know as you see prices continue to move up we that generally.
Equates to a higher loan book for CFC.
Okay, and then your inventory turnover is accelerating nicely both sequentially and year over year.
Can you maybe talk us through the mechanics of how this contributes to our profitability and.
Whether or not you're seeing that similar philosophy as we progress through to keep it at this point.
Yeah, I think that whenever you have volatility you're going to see our inventory turn faster and as it relates to the profitability. The more inventory turns we have it just it equates to more transactions and more more ounces sold and and you. Just you know you get you get people.
With and it goes back to what we just talked about with a higher order size or higher higher.
Dollar volume on the trades is that you're going to see our inventory turn faster, we're going to replenish inventory faster you're going to see less inventory inventory may not sit as long as it doesn't slower times. So I think that it's all tied together and you know we were encouraged.
That this this quarter, we continue at least as from what we saw in October and what we've seen with some of the volatility in metal prices as well as some extreme volatility in the equities markets.
We feel like we're exceeding our expectations so far in Q2.
Great and then you did touch on the equities markets. So.
One of them is perceptions, we here I'm often out there that we have to explain away to investors is the.
Importance of the price of the AD.
Absolutely price gold or silver can you just remind us how a mark.
Able to deliver quality.
Value to its customers to route to retail and institutional investors across all environments and how volatility is really our friend more is that the more than the absolute price of the underlying commodity.
Maybe I answer the question myself, but you know you did a pretty good job.
You did a good job on that.
I think that.
This has been an unprecedented year for everybody including us.
I'm not exactly.
I can't pinpoint any one trend that I see happening that that I think we can we can count on I mean the last.
Seven days I would say prior.
Prior to this this month yesterday and late last week was that we had equities moving up fairly strong after the election.
And we had metals moving up also at the same time and we saw this through about Friday of last week.
And then you know and then we had a situation yesterday, where we we opened we had to a.
A vaccine that was published or a report on a vaccine as well as you know.
Less less of a contest in the election in a little more certainty in what was going to happen.
Gold and silver diverged from the equities yesterday.
In the morning, it was a very.
Very quick drop and it was very <unk>.
It was very dramatic and that volatility.
It was very good for US we we had a very good we had a big uptick in in activity yesterday, whereas last week.
Metals were moving up slowly in equities are moving up slowly and.
It was a little bit slower after the election last week for us.
And then today you see metals starting to come back and then kind of continue to March upward I think for us.
You know when you see see flashed drops and you see buying opportunities that's very good for anymore, and we tend to do very well on drops as well as if there's an overall sentiment that prices real prices of metal are moving higher a year, you're going to get some some some.
Stained some sustained buying I think that.
Depending on the platform, whether it's a direct internet retailer or gold line. For example, these different factors affect their client base a little differently. That's why we like to be involved as much as we can in all platforms as it relates to retail sales.
I will say that as it relates to gold line. We saw as you can see from the performance in Q1, we saw their customer base I'm really outperforming our expectations, leading up to to the election, and then with the results of the election, we have seen.
No drop off in the four or five days since the election, we have seen gold line in particular and their customer base continue to respond to the macroeconomic issues as well as you know post post election questions.
So I I think you know we have a great insight based on what our our wholesale customers are buying that are then that product is going to two to two retail investors. We have we have good insight from our you know our view into our investments that we have in internet retailers and then our.
Clearest picture is clearly what we see happening in gold line and I think what we're seeing you know the last six months eight nine months in gold line is the reason why we we made the acquisition in the first place and it's helping us with good visibility into what retail price.
Just metals buyers are doing so.
I did not come close to answering the question absolutely does does a great job. So congratulations on yet again another record quarter.
Really impressive. Thank you. Thanks, Thank you think.
As a reminder, if you wish to ask a question press star one on your telephone keypad Thats Star one.
We have a question from Chris to CPI singular research. Please go ahead Sir.
Oh hi, everyone.
I had a question.
On the balance sheet, but.
You could remind me.
What are these derivative what are the derivative asset and why is there it was there.
A jump in and then from $46 million or 114 your view or.
Sequentially, what's going on there.
Or you want to get a better shot.
Good of assets or are primarily related to our hedging book. So it's simply a factor of what is going on in terms of price movement from the time, we put the hedge on to the balance sheet date. So if we're if.
The price moves up or down more and that's going to impact the derivative assets, but those are those are primarily related to the.
The hedges that you made as you know our inventories fully hedged at all times, so that asset or liability is going to be impacted in more volatile markets and will move more rapidly up or down.
Due to that.
Do you see activity the market getting larger balance sheet, we're seeing higher gold and silver prices, so you're going to see those derivative assets typically be higher aggregate number than they were historically a starting in the last couple of years, but you're going to see those swing around depending on the timing of when those hedges were put on what might those contracts are in the money.
In terms of forwards or futures and.
What was the settlement or is.
Okay, and just to add on I would say that.
Over the last 10 months, we've seen increasing activity both in a mark's hedge position as well as in customers that we hedge for and we do hedge for third parties and we have a.
A very good business there. So it has the volatility in the macro environment has has caused there to be bigger positions that we're we're hedging at which then leads to bigger numbers on these line items.
Okay.
Alright, great. Thanks, and then.
One one other question I guess.
In the next in this current quarter.
I mean, if we see similar sort of pattern to gold and silver is.
Is it fair to say that we would see a similar gross margin.
With at the ended the quarter for you guys.
I mean, I think it's too early in the quarter to really tell and we have been pointing for quite some time at the election and the results of the election and what happens next.
Is going to drive a lot of.
A lot of our our metrics and I think that we feel that you know.
October was a it was a good month.
But there were some slow periods also within within the October month, and I think that you had.
Particularly the last couple of weeks up and up until yesterday, we did feel like there were some people that were.
Customers and and Counterparties that were kind of sitting on their hands and kind of waiting to see what happens. So I don't think we have enough data at this moment to really say, what's going to happen for the full quarter.
I will just say that.
You know October.
We met our expectations and we believe we saw what we thought we would see and we'll have to see what happens here in November and December but.
Based on the last nine months you know it seems like every day.
We get an opportunity to take advantage of some volatility somewhere in the markets and it's been good for us.
Okay.
Great and then.
One thing I have you seen a change in consumer.
I guess habit based upon.
The presidential election result.
Yeah, I I think that.
We have seen a change in investor habits, and I think you saw yesterday you had a you had a a huge day in equities, which which had something to do with the vaccine and also had something to do with everyone just being relieved that the election was over and.
And I think that you know, we we were fortunate enough yesterday, we had a kind of a little flash drop in gold and silver in it you know we saw it energize our customers. So yeah, I mean, I I think that you'll probably see events over the next.
For years that are going to.
Impact us and there's a lot there's a lot going on out there right now.
Okay, great. Thanks, Okay.
Okay. Thank you.
The next question is from Mitch Ami.
Wed Bush Securities. Please go ahead Sir.
Afternoon, Greg.
Hello, Mitch.
Fantastic quarter, Needless to say I only have one question and then one comment.
When will be your first chance if if there's one coming up.
For you to refinance your asset that.
Securities out there.
Our.
Our banks coming to you wanting to do that right about now given the.
Changing your balance sheet.
Oh, yes. The answer is yes, and yes, we have talked to people about you know how how we will look to to refinance that piece of our of our overall borrowings.
I think it's a little bit premature right now to do too much I think we were having some opportunity to talk to people about.
Our entire our entire financing and and different.
Ways for us to finance, our business, whether it be leases, whether it be our normal credit facility, whether it be the ABS I think we do have options.
And as it relates to the ABS, specifically I mean, we still have about three years left on that so.
Little under three years two years, so I think that you know.
You will see us over the next 12 months start to explore is there an opportunity to refinance. It early is there work we can be doing up to that date. When it you know when it becomes due to to be prepared or or like I said, if there's anything we can do early certainly the interest rates today are.
Much better in our favor as opposed to where they were.
When we locked in to the ABS. So it's it's on everybody's mind here to be ready and to try to take advantage of anything we can do to to lower our borrowing costs.
Got it.
The second thing is just to comment as a.
Yes, the stockholders, it's been around since the spin off and.
Having.
Then to several annual meetings on a lot of these calls in an environment that was less.
Less conducive to your business than it is now.
And the Guy who probably directed some.
Pointed questions your way I just wanted to.
Thank you and the rest of management for here for your governance that got us to this point because a year ago this quarter three.
Three dollarsnine sensors, a long ways away. So just wanted to say thanks.
Yeah, well you know we try to do what we say, we're going to do and try to be transparent to everybody on on patients and and and educate how our business works and you've been one of the best students. So thank you for your time and learn in our business and and letting other people know about it.
The job take care. Thanks.
[music].
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.
Thank you all for joining our call today as always we appreciate your interest and continued support and we look forward to keep you apprised of the next chapter in a Mark's progress have a great day.
Before we conclude todays call I'd like to provide a marks safe harbor statement that.
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.
A marks 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 in AG.
Good could cause actual results to differ materially from those expressed or implied in these statements Baxter.
Factors that could cause actual results to differ include the following.
Failure to execute the company's gross strategy as planned.
Greater than anticipated costs incurred to execute this strategy changes in the current domestic internet international political climate.
Increased competition for a marks higher margin services, which could depress pricing that they are 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 Companys public filings with the Securities and Exchange Commission. The words should believe estimate expect intend anticipate foresee plan and similar expressions or variations there I.
Then apply certain of the forward looking statements, which speak only as of the date on which they are 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.
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 a link in the investor section of the company's website.
Thank you for joining us today for remarks earnings call. You may now disconnect your lines.
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