Q1 2022 A-Mark Precious Metals Inc Earnings Call
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Good afternoon, and welcome to a Mark precious metals conference call for the fiscal first quarter ended September 30th 'twenty 'twenty. One my name is sherif and I'll be your operator this afternoon.
Before this call a mark issued its results for the fiscal first quarter of 2022 in our press release, which is available in the Investor Relations section of the company's website at Www Dot a mark Dot Com you.
You can find the link to the Investor Relations section at the top of the homepage.
Joining us for today's call are a Mark's CEO, Greg Roberts, President tortured him as 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 will be made available for replay via a link available in the investor election Relations section of a Mark's website.
Now I would like to turn the call over to a marks CEO Mr. Greg Roberts.
Thank you Sherry and good afternoon, everyone. Thank you again for joining our call today.
As you can see from our earnings release Q1 marked another solid quarter as hey, Mark delivered $26 million of net income and diluted EPS of $2 17.
We also generated $41 1 million and adjusted pre tax income and return on equity of over 7%.
Our gross margins remained strong at 2.78, notably better than last year's comparable quarter at 194 as more of our business is more weighted towards our higher margin direct to consumer.
<unk> segment, which continues to be a strong contributor for us with.
Within the DTC segment <unk> continues to deliver solid results and is integrated seamlessly into our broader organization.
In fact accounting for approximately 44% of <unk> gross profit in the quarter.
Macro conditions continue to be very supportive of our business characterized by demand from both retail and wholesale customers coupled with ongoing supply constraints that provide opportunities for us since we are more reliable access to supply.
It's worth noting that the precious metals industry experienced slightly subdued conditions at the beginning of our first fiscal quarter. However, as the quarter progressed conditions improved.
Overall these market conditions conditions continue to validate our strategy of having a fully integrated platform that can provide reliable access to a wide variety of supply, while reaching a diversified base of wholesale and retail customers with products and value added services.
We continue to be focused on improving and optimizing performance through initiatives, such as innovative product offerings to our customers and developing marketing enhancements to reduce customer acquisition costs and reach new target audience within our DTC.
<unk> recent offerings included a very successful product offering celebrating its 10th anniversary.
Now I'm going to turn it over to our CFO Kathleen Simpson Taylor to walk you through our financials in more detail then our president Thor <unk> will discuss our kpis and operational metrics. Afterwards, I will provide a further update on our business and growth strategy and take your questions Kathleen.
Thank you, Greg and good afternoon, everyone. Our revenue for fiscal Q1, 2022 increased 8% to 2.01 billion from one seven.
7 billion in Q1 of last year. The increase in revenues was due to an increase in silver ounces sold at higher selling prices, partially offset by lower gold ounces sold at lower selling prices.
J M Boardwalk contributed four $472 3 million of revenue a quarter.
Gross profit for fiscal Q1, 2022 increased 55%.
<unk> 6 million or 2.78% of revenue from $36 1 million or 194% of revenue in Q1 of last year. The gross profit increase was due to higher gross profit earned from our DTC segment, including $24 7 million.
Contributed by J M D.
SG&A expenses for fiscal Q1, 2022 increased 76% to $16 7 million from $9 5 million in Q1 of last year.
The increase was primarily due to 6 million of expenses incurred by J M D.
<unk> 7 million of consulting and professional fees higher insurance costs of <unk> 4 million and increased compensation expense, including performance based accrual of <unk> 2 million.
Depreciation and amortization expense for fiscal Q1 2022 increase.
1551% to $8 3 million from <unk> 5 million in Q1 of last year.
Increase was primarily due to $7 7 million of amortization.
Mired intangibles related to J M D.
Interest income for fiscal Q1, 2022 increased 39% to $5 5 million from $4 million in Q1 of last year. The aggregate increase was primarily due to higher interest income earned by our secured lending segment and higher other finance product income.
Interest expense for fiscal Q1, 2022 increased 28% to $5 5 million from $4 3 million in Q1 of last fiscal year. The increase in interest expense was primarily driven by <unk> 7 million related to product financing arrangements.
Point 4 million associated with our trading credit facility and notes payable and <unk> 2 million of loan servicing fees offset by a <unk> 2 million decrease in interest and fees associated with liabilities on borrowed metals.
Earnings from equity method investments for fiscal Q1, 2022 decreased 64% to $1 5 million from $4 1 million in Q1 of last year. The decrease was due to a $3 7 million reduction in equity method income from Jan B as it is now.
We owned subsidiary this was offset by increased earnings of 1 million from the company's other equity method investments.
Net income attributable to the company for the first fiscal quarter of 2022 totaled $26 million or $2.17 per diluted share.
This compares to net income attributable to the company of $23 1 million or $3.09 per diluted share in Q1 of last year.
Our diluted EPS for the fiscal first quarter of 'twenty 'twenty. Two is based on the weighted average shares outstanding of $12 million compared with $7 5 million weighted average shares outstanding during the first quarter of last year.
Adjusted net income before provision for income taxes, a non-GAAP measure, which excludes acquisition expenses amortization and depreciation for Q1 fiscal 2022 totaled $41 1 million, an improvement of $10 4 million compared to $30.
7 million for Q1 fiscal 2021.
Turning to our balance sheet.
At quarter end, we had $29 6 million of cash compared to $101 4 million at the end of our fiscal year 2021, our fiscal year 2021 cash balances were higher due to our planned precious metals purchases in early July our tangible.
Net worth at the end of the quarter was $184 9 million up from $169 4 million at the end of our fiscal year.
That completes my financial summary, now I will turn the call over to Thor, who will provide an update on our key performance metrics Thor.
Thank you Kathleen.
Looking at our key operational metrics for the fiscal first quarter of 2022.
669000 ounces of gold in fiscal Q1, 2022, which was down 7% from Q1 of last year and down 13% from the prior quarter.
We sold $28 1 million ounces of silver in fiscal Q1, 2022, which was up 16% from Q1 of last year, but down 29% from last quarter.
Wholesale trading ticket volume, our second key metric, which represents the total number of product orders processed by our trading desk.
Decreased 26% from Q1 of last year and decreased 22% in the fourth quarter of fiscal 2021 or.
Our third key metric is inventory turnover, which is a measure of how quickly inventory has moved during the period for the fourth quarter. Our inventory turnover ratio was three <unk>, which was a 24% decrease from 5.0 in Q1 of last year and a 7% decrease from $4. One in the prior quarter. Finally, the number of secured loans at the end of September.
2074, an increase of 10% from the end of June and an increase of 84%.
From September 32020, the dollar value of our loan portfolio at the end of September totaled $110 3 million, which is down 2% from the end of June and up 31% from September 32020, typically the number of loans increased during periods of rising precious metal prices decreased during those periods of declining or smell.
Right.
That concludes my prepared remarks, I'll now turn it over to Greg for closing remarks, great. Thanks Thor.
We continue to execute on our strategy of scaling our fully integrated and diversified precious metals company and remain optimistic about the outlook for Amer.
Our direct to consumer and wholesale segments continue to experience strong demand, which is driving healthy margins and profitability. Additionally, we continue to evaluate opportunistic investments and initiatives.
Dominic focused within DTC that can further expand and diversify our customer base in an accretive manner for our shareholders.
Among other projects, we are focusing on a new digitally native precious metal strategy.
Called cyber metals.
And expect to provide the market with a more comprehensive update in the third fiscal quarter of 'twenty two.
Our DTC and wholesale segments benefit greatly from their access to our supply chain.
Including through our wholly owned subsidiary Silver 10 men and our minority owned Sunshine Mint.
The minutes are performing strongly and our capital investments have driven higher utilization, which has resulted in production levels at the silver comment as high as 780000 ounces of silver per week.
We continue to evaluate additional investments to expand capacity and reduce operating costs into our mint and our minting operations.
Looking ahead, we continue to see positive macro tailwind persisting, including precious metal supply constraints and elevated demand for precious metals products in both the retail and wholesale segments.
We remain extremely confident that our platform and proven business model has been structured to generate profit and stable periods and opportunities for outsized returns in periods of volatility.
Driving strong returns over the long term.
Operator.
Thank you we will now begin the question answer session.
To join the question queue you May Press Star then one on your telephone keypad you.
You will hear a tone acknowledging your request.
If youre using a speakerphone please pick up your handset before pressing any cheese.
To withdraw your question. Please press Star then two we will pause for a moment as callers join the queue.
Now our first question will come from Thomas Forte with D. A Davidson.
Please proceed great.
Great. Thanks for taking my confidence and Greg and.
Congrats on the quarter Alright. So I'll go one question at a time, Greg can you give us your updated thoughts on international ecommerce expansion.
Oh sure we have a two or three.
Potential.
Opportunities were looking at.
I think we are pretty close on one of them and I think the other two were still feeling our way through the opportunity I will say that.
We have made some progress on one in particular.
We are placing a consignment of metal near their location and we.
We are starting to do some.
Some increased wholesale business with them as we evaluate their business.
The other opportunity we are a little bit closer on.
And I feel pretty confident that.
There's a small opportunity there.
It's not a big company.
But it's a.
It's an e-commerce business that.
You know.
Looks and feels like the early days of JM volume. So I think there is some opportunity there Michael and his team are.
Leading that that drive.
And feel pretty good about the potential for us with.
With that opportunity, but it's probably still a couple of months away.
Great and then I wanted to get your current thoughts on the macro environment from an inflationary standpoint and to what extent that may be contributing.
Getting to the strong demand at the wholesale and retail level.
I mean, the macro environment right now today in on November four it seems to be pretty strong as we've seen it in a while.
There certainly is.
A lot of chatter about inflation and the supply constraint issues all around the world.
It's what we've been dealing with for 18 19 months now so I think that it's you know it's in the news and you're hearing about.
Why these boats can't be unloaded why these containers can't be unloaded.
How do you move stuff around the country around the world.
These are challenges that we had been managing.
Since the pandemic hit 1917 19 months ago. So.
I think.
These are all things that are driving.
Concern and.
A little bit of anxiety out there in the world and I think it's translating into.
Demand.
Strength in our markets.
I will say that.
At the consumer level.
In our direct to consumer segments.
We have seen an increase in activity and demand.
Starting with with gold line about six seven weeks ago.
And then.
Jim also.
Started to increase their activity.
And in the environment right now.
Seems very good for our business.
Alright, and then last question for me I think when you were in the process of acquiring Dzhambul, Ian you talked about the opportunity to extend your secured loan effort to that customer base can.
Can you talk about where you are if that's something you're still considering.
Absolutely we've been testing it I can say that if you go to the <unk> website.
You are in the test group, you get the opportunity to link to CFC.
And.
You can you can get that through that link you can get information on.
Uh huh.
Using your precious metals as a.
And asset and collateral to borrow money against against that collateral.
We have been I think.
Pleasantly surprised.
In the test group that we've been testing with we'd probably I'd say.
Written a number of loans, we've had our operations why is we've been able to.
Help the customer move the collateral to our Las Vegas facility, whereas held.
And.
Thank you.
You can.
Yeah, we're feeling very good that that.
The processes are working and that the test is working.
At the checkout you you can also click.
A storage option, which allows you to keep your metal and storage in one of our depository. So.
That is a test that we're also doing in conjunction with the collateralized loan business and.
At this point.
Going very smoothly and I think theres a lot of potential there for us as we were hoping back in March on the road show.
Great Thanks, and congrats on the quarter again, Greg.
Thanks, Tom.
The next question comes from Andrew Scott with Roth Capital Partners. Please.
Please go ahead.
Yeah.
Good afternoon, and thank you for taking my questions. So my first question that Greg asked to go back to your prepared remarks, you talked about some marketing enhancements that you guys were.
Taking to kind of decrease the acquisition costs for your direct to consumer customers. So can you just provide some additional color on that on those initiatives.
You know I think that the macro tailwind that we're experiencing are.
And Kurt are encouraging and they're causing us to look at some other opportunities.
As it relates to customer acquisition.
I think that that we've experimented and done a number of tests.
With our online marketing both at gold mine in a jam bullion.
And I think we've seen some initial success from from just looking at some other ways to attract customers and bring customers in.
And I think that the data and the information that we're acquiring through those tests.
Is going to ease.
Going to drive us towards the things that are working and the things that are.
Causing us to have a lower cost of acquisition I think in particular in the last three to four weeks.
Whenever we see.
The macro activity in.
A good environment, we tend to.
Have a lot more activity around the precious metal space, which just allows us to acquire new users and generally.
With the same spend we get more users so I think being positioned.
What we've been working on the last four or five months to be in position when you get a.
An increased level of activity in search going on.
Around our products or our services.
It's naturally going to drop our our user our client acquisition costs down. So I think we're seeing an environment right now that that is allowing us to capture a number of new customers a little bit higher than probably what we had forecast.
Great. Thank you that was very helpful and my second question here is to deal with.
Your ability to leverage.
Europe, especially in the silver supply shortage.
Speak to how your ability to create custom and unique skus from your mint to send to your customers and at <unk>.
In a short time period, where some of your competitors or are waiting on silver how that may.
Benefit you guys in the holiday season, and just over the next couple of quarters.
Yes, yes, we probably have 20 products, we're working on right now for JM bullion.
Two products were working on for gold line that'd be minute are being minted at silver town.
If you were to go to the <unk> website, we created a number of new products as I said earlier for the 10th anniversary of JM bullion.
What I would consider personally a hugely successful program.
The ounces sold was way ahead of what I thought they would be.
And those those products were created at silver Todd Mint.
We started.
The concept stage of that product and those products, maybe six weeks before we started selling them.
And it just seamlessly the process, we now have in place, bringing together, both Sunshine and silver town.
Getting the the concept the art work the creative side of the products going.
Is right now.
Moving faster than that I've seen it before I mean, we really are able to take a concept.
And get it to market.
Within three to four weeks, which which which is very beneficial for us to be nimble and quick in.
In attacking areas, where the market is demanding something and we can address that demand very quickly.
Great. Thanks for the color and congrats on another quarter with strong profitability.
Okay.
Once again, if you have a question. Please press Star then one.
The next question comes from Mitch Almy with Wedbush Securities.
Please go ahead.
Great quarter, Greg Nice work. Thank you thanks Mitch.
And I have a couple of questions. The press release mentioned sort of a subdued beginning to the quarter.
Which I guess would mean it.
It got better throughout the quarter, if you could walk through.
Maybe sort of a month to month progression and what we might conclude from that.
That'd be great.
Sure be happy to.
We talked a little bit about this on the last call.
June which was our last month in our Q4.
Was was extremely active a lot of that had to do with the.
Launch of the <unk>.
Type two 2021 silver Eagle.
Last year.
Q to where we just had a little bit of a breather.
We kind of felt that in in as as I said in July and August, but but certainly in the last.
Four to six weeks and obviously this quarter is we're just getting into it and we don't even have really all the information for October yet, but certainly the environment and everything we're feeling.
Is is feeling.
More like more like what we saw in September at the end of this quarter. So we're very optimistic about that.
Super one more question you.
You mentioned your digital gold.
Metal products.
Hold times and I've been on that.
JM Bouillon website I haven't seen a thing so if you could take something a little bit more about what that is well we'll see it.
Sort of conceptually what Margaret it's aimed at I'd appreciate it.
Yep. So we've talked about this all the way back on the road show, we've talked about it every quarter jambalaya and has been in the process of developing.
What we've called as a digitally native.
Product I can say now that the the name of the product and the logos and the branding is all finished if we're calling at cyber metals.
I was in Dallas with the programmers in the management of JM last week and they ran me through the.
The test.
Of the site to site internally is up and running right now on the mobile App is nearly finished.
But in that meeting I was able to really see for the first time. What this is all about and what it's what it's going to do for a mark and J M and all of our direct to consumer segments is is really very very exciting from a timeline standpoint, I anticipate it will be in beta.
Testing in December.
We will have a group of people that are actually trading on the platform and conducting business controlled group.
With the hope that.
By early.
Q3 for US January February that we'll be able to start to roll. This out again to a to a broader actual customer base.
But but but what I saw is very exciting it's very similar to to a mobile app for Ah Schwab account or a TD account or an E trade account.
It's going to allow.
Mobile users the ability to buy.
Fractions of a bar or fractions of of silver or gold.
In any quantity that they like in gold a fraction of an ounce in silver a single ounce.
And be able to deposit money in their account.
And basically trade knowing that the physical metal is going to be backed up in one of our depository facilities, where you'll be able to see it and and know that it's there secure in its own cage segregated.
And it's it's just a very exciting concept to me I really believe it's going to allow us to to.
Put a marketing effort in that will.
Allow us to go after a very broad new customer base.
With the idea that.
The ETF type customer or the customer that may buy mining stocks.
We'll be able to use this product to really have direct access to precious metal exposure will be it will be offering.
Gold silver platinum palladium.
And.
I think that you'll be able to trade within the medals.
You'll be able to build a position.
You'll be able to get on an accumulation program, where you can you can have an auto invest once or twice a month or at base.
Basically debit your account and adds to your precious metals position.
We believe that that down the road, we'll be able to add foreign currencies that you'll be able to use to trade.
And it's just.
Very very exciting product that we've been working on really diligently for the last nine months and then we're getting I'd say we're at the.
We're in the Red Zone right now, we're getting close to the Goldline. So it's very exciting.
Is there anything like that out there currently.
I do believe that at Max one of our competitors has a product they call one gold.
Which is available and it is it is it is a similar.
Product and platform.
But what.
What I saw on Friday last week was just.
Very exciting I have never seen anything like it.
That's great and again congratulations on the corner.
Thanks for answering the questions.
Thanks, Thanks Mitch.
Once again, if you have a question please press star and wine.
Okay. Next question comes from side Jacob J a M. Please.
Please go ahead.
Oh, that's how are Ya.
Great how are you doing.
Doing well just wanted to ask real quick.
On Jan be you know it was curious so it it looks like gross profit was down sequentially quarter over quarter. They just wanted to see if I'm interpreting that right and you know if there's any seasonality to be aware of or what drove that.
At least at these silver Eagles are for 2022 are going out of production in the next couple of weeks I think we're very well positioned.
To continue to fill demand and that product through the end of the year and then in January we're going to have the new 2021 coins.
I think it's it's all kind of part of the process.
But we were definitely seeing.
This quarter, we're seeing.
A lack of supply of silver Eagles again, as we as we wind down in there.
<unk> production on the existing current run.
And that's driving demand for all of our other products. So.
It's a <unk>.
Cyclical thing, it's a process and a cycle that we really like and see.
Seems to be very good right now.
Got you and no debt.
That makes that makes sense and I really appreciate the color.
And then just wondering on the wholesale side.
It looked like you guys sold a similar amount of gold this quarter versus last quarter and ounces silver was down a bit was there anything that impacted the profitability on the silver side in the quarter.
For this quarter versus last.
Yes, I mean again, it's all part of the same remember that the gold.
The goal also.
Switch to a type two product on July 4th or fifth.
And again, there was a lot of pre selling going on in June.
The premiums are still very healthy.
And demand right now.
I sat in particular over the last three to four weeks has really outpaced supply.
Really appreciate that and then just lastly.
I was hoping to ask you about I think you guys reported an adjusted EPS number last quarter of it but it wasn't in the release this quarter. So I just wanted to get a sense for is that the number that we should be going off of just the adjusted net income I think yes, I mean, I think that's a very good point and a good question you make I mean, if you look at.
Our press release, we do reference this adjusted net income.
And.
Well. This is the number we really look at because it's the number.
After you add back the JM amortization that we're getting hit with right now so $41 $1 million in our release its about $3 35 a share.
And I think that.
From our perspective on a cash flow in actual profit basis. That's that's an important number we're continuing to look at ways that we can message to investors that number and be a little bit clear on that number so I do think.
Looking forward Youre going to see some more.
Specific information on that number and we plan.
On using it just because historically <unk> really didn't have much amortization.
Have a great day and thank you very much.
Before we conclude today's call I would like to provide a Mark's 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 future plans objectives expectations performance events and alike are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, and the Securities Exchange Act of 1934.
These include statements regarding future macroeconomic conditions and demand for precious metal products and the company's ability to effectively respond to changing economic conditions.
Future events risks and uncertainties individually or in the aggregate could cause actual results or circumstances 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 growth strategy as planned greater than anticipated costs incurred to execute this strategy.
Changes in the current international political climate, which has favorably contributed to demand and volatility in the precious metals markets.
Increased competition for the company's higher margin services, which could depress pricing.
The failure of the Companys business model to respond to changes in the market environment as anticipated Gen.
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