Q1 2023 A-Mark Precious Metals Inc Earnings Call
Good afternoon, and welcome to a Mark precious metals conference call for the fiscal first quarter ended September 32022.
My name is Jenny and I will be your operator this afternoon before.
Before this call a mark issued its results for the fourth quarter and fiscal year in our press release, which is available in the Investor Relations section of the company's website at Www Dot Hey, Mark Dot Com you can find the link to the Investor Relations section at the top of the homepage.
Joining us for today's call a marks CEO , Greg Roberts, President Thor <unk> and CFO Kathleen Simpson Taylor.
Following their remarks, we will open your call to your questions.
Before we can see at the call I'll provide the necessary cautions regarding the forward looking statements made by management during this call I.
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 Relations section of a Mark's website now I would like to turn the call over to a marks CEO Mr. Greg Roberts Sir Please proceed.
Thank you Jenny and good afternoon to everyone. Thank you all for joining our call today.
We reported one of the strongest quarters in <unk> history with $45 million of net income and diluted EPS of $1 83.
Noted in our earnings release.
<unk> delivered solid gross profit with a 13% sequential increase and a 79 basis point increase in our gross margin percentage.
<unk> also generated a 24% increase in EBITDA and an amazing 9% quarterly return on equity.
These results continue to demonstrate the strength of our business as a result of our growth strategy, which has broadened our customer base and further enhanced our fully integrated capabilities.
Our direct to consumer or DTC segment continues to perform outstanding contributing over half of our consolidated gross profit during the quarter.
We were successful in growing our DTC customer base by an additional 49000, new customers during the quarter to a total of $2 1 million customers as we continue to expand our customer reach with our diversified suite of DTC brands that each target their own unique.
Demographic customer.
Continued wider premium spreads as a result of heightened demand and supply constraints drove a 9% sequential increase in gross profit and expanded our DTC gross margins by 195 basis points to nine 8% in Q1.
As we recently announced JMP closed the asset acquisition of Bgs.
It's over 120000 customers and over $200 million in revenue reported in calendar 'twenty one.
We have now completed the integration of the GSE as a standalone brand and our DTC segment and look forward to reporting.
<unk> contribution to the segment's performance in the second quarter of fiscal 'twenty three.
The JM B team is leveraging its technology and resources to capture the full potential of our new brand and to drive additional value for this business.
Early indications this quarter or that be GSE is exceeding our expectations.
Our <unk> business also remains a key driver of our performance with production remaining at near record levels.
We produced nearly 11 million ounces during the quarter, which was a 56% increase over the same quarter last year.
We continue to invest in our <unk> operations, including our recent acquisition of silver tongue mints largest tooling supplier marksman tool and die, which will provide cost reductions faster response time for repairs and more proactive planning for our future tooling needs.
We recently purchased additional furnace to expand capacity and support double blanking operations and we continue to evaluate the further expansion of both our minting facility.
And its production capabilities.
Now.
I will turn the call over to our CFO Kathleen Simpson Taylor to walk you through our financials in more detail then our president Thor <unk> will discuss our operating metrics.
Afterwards, I will provide a further update and I look forward to taking your questions Kathleen.
Thank you, Greg and good afternoon, everyone.
Revenues for fiscal Q1, 2023 decreased 6% to $1 9 billion from $2 billion in Q1 of last year.
The decrease was attributable to a decrease in gold ounces sold and lower average selling prices of gold and silver partially offset by an increase in silver ounces sold.
The DTC segment contributed 23% and 26% of consolidated revenue in fiscal Q1, 2023, and fiscal Q1 2022, respectively.
Revenue contributed by JMP represented 20% of the consolidated revenues for Q1 of 2023 compared to 23% in Q1 of last year.
Gross profit for fiscal Q1, 2023 increased 37% to $76 6 million or 4.0% to 3% of revenue from $56 million or two 7% 8% of revenue in Q1 of last year.
The increase in gross profit was due to higher gross profit earned from the wholesale sales and ancillary services and DTC segment.
Gross profit contributed by the DTC segment represented 55% of consolidated gross profit in fiscal Q1, 2023 compared to 54% in the same year ago period.
Gross profit contributed by J M. D represented 48% of the consolidated gross profit in fiscal Q1, 2023 compared to 44% in Q1 of last year.
SG&A expenses for fiscal Q1, 2023 increased 7% to $17 8 million from $16 7 million in Q1 of last year.
The increase was primarily due to an increase in compensation expense, including performance based accruals of 1.0 million.
Advertising costs zero point $7 million.
An increase in computer related expenses of <unk> 2 million, partially offset by lower consulting and professional fees of <unk> 5 million and lower insurance costs of <unk> 5 million.
Depreciation and amortization expense for fiscal Q1, 2023 decreased 62% to $3 2 million from $8 3 million in Q1 of last year.
The decrease was primarily due to a $5 $1 million decrease in amortization of acquired intangibles related to <unk>.
Interest income for fiscal Q1, 2023 decreased 8% to $5 1 million from five 5 million in Q1 of last year.
Aggregate decrease in interest income was primarily due to lower interest income earned by our secured lending segment and lower other finance product income.
Interest expense for fiscal Q1, 2023 increased 12% to $6 1 million from five 5 million in Q1 of last fiscal year.
The increase in interest expense was primarily driven by <unk> 5 billion associated with the company trading credit facility and Amcs note, including amortization of debt issuance costs.
$2 million related to product financing arrangements.
<unk> 1 million in interest associated with liabilities on borrowed metals and this was offset by a decrease of <unk> 2 million of loan servicing fees.
Earnings from equity method investments in Q1, 2023 increased 80% to $2 7 million from $1 5 million in the same year ago quarter.
The net increase of $1 2 million was due to increased earnings from equity method investments.
Net income attributable to the company for the first quarter of fiscal 2023 totaled $45 1 million or $1 83 per diluted share.
This compares to net income attributable to the company of $26 million or $1 <unk> per diluted share in Q1 of last year and this was adjusted for the effect of the two for one stock split in June 2022.
Our diluted EPS for the fiscal first quarter of 2023 is based on weighted average diluted shares outstanding of $24 7 million.
Paired with 24 million weighted average diluted shares outstanding during the first quarter of last year.
This has been adjusted for the effect of the two for one stock split that occurred in June 2022.
Adjusted net income before provision for income taxes, a non-GAAP financial measure, which excludes acquisition expenses amortization and depreciation for Q1 fiscal 2023 totaled $61 3 million, an increase of 49% compared to.
$41 1 million in the same year ago quarter.
EBITDA, a non-GAAP liquidity measure for Q1 fiscal 2023 totaled $62 2 million, a 52% increase compared to $41 million in Q1 of fiscal 2022.
Now turning to our balance sheet.
At quarter end, we had $64 $6 million of cash compared to $37 8 million at the end of fiscal year 2022.
Our tangible net worth at the end of the quarter was $339 7 million up from $321 6 million at the end of the prior fiscal year.
And finally, as we announced in our earnings release <unk> Board of Directors has reaffirmed its previously announced regular quarterly dividend policy of <unk> 20 per common share or <unk> 80 per share on an annual basis.
The initial quarterly cash dividend under the policy was paid in October 2022.
It is expected that the next quarterly dividend will be paid in January 2023.
The declaration of regular cash dividends in the future is subject to the determination each quarter by the board of directors based on a number of factors, including the company's financial performance.
Available cash resources cash.
Cash requirements and alternative uses of cash.
Applicable bank covenants.
That completes my financial summary, now I will turn the call over to floor.
Update us on metrics.
Sure.
Thank you Jocelyn looking.
Looking at our key operations operating metrics for the first quarter of fiscal 2023, we sold 629000 ounces of gold in Q1 fiscal 2023, which was down 6% from Q1 of last year and down 2% from the prior quarter, we sold $35 9 million ounces of silver in Q1 fiscal 2020.
Three which was up 28% from Q1 of last year and down 4% from last quarter.
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 already purchased for the first time. During the period was 49000 in Q1 fiscal 2023, which was down 7% from Q1 of last year and compares to 48800 from last quarter.
The number of total customers in the DTC segment at the end of the first quarter was approximately $2 1 million, which was a 12% increase from the prior year the year over year increases in our customer base metrics were primarily due to organic growth of our <unk> customer base.
The DTC segment average order value, which represents the average dollar value of third party product orders delivered to DTC SYGMA customers. During Q1 fiscal 2023 with $2333, which is up 2% from Q1 fiscal 2022.
For the fiscal first quarter, our inventory turn ratio was $2 seven which was a 29% decrease from three eight in Q1 of last year and comparable with the prior quarter.
Finally, the number of secured loans at the end of September totaled $1 82, a decrease of 48% from September 32021, and a decrease of 52% from the end of June the dollar value of our loan portfolio at the end of September totaled $87 3 million a decrease of 31.
1% from the end of last fiscal year.
Typically the number of loans increased during periods of rising precious metals prices and decreased during periods of declining precious metal prices numerous CFC loans were paid off during the quarter when the market experienced a material drop in precious metals prices, our system and controls operating effectively and we did not incur any related loan loss loan losses that <unk>.
My prepared remarks, I'll now turn it over to Greg for closing remarks, Greg.
Thank you Kathleen.
As you can see we're off to a strong start in our fiscal 2023 and are optimistic that this year will be another period of solid performance for a mark.
Looking ahead, we continue to see positive macro tailwind, including precious metal supply constraints and elevated demand for our products in both wholesale and retail segments to build on this momentum and further further strengthen our platform. We are continuing to evaluate investment opportunities to expand our geographic presence.
And market reach while creating value for our shareholders. We are focusing on opportunities that align with our business model and our synergistic for a mark we remain optimistic that our proven business model and integrated platform will allow us to realize growth and profitability over the long term.
Jenny.
Thank you, Greg ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time. We also outpacing. Your question you. Please pickup your handset if listing on a speaker phone to provide optimum sound quality. Please hold while we poll for questions.
Okay.
Thank you. Our first question will come from Thomas Forte of Davidson Thomas Your line is live.
Great So Greg.
Catherine Thank you congrats on a great quarter I have a call.
Questions I'll go one at that time.
A lot of really good impressive numbers in the quarter, although Greg what stood out to me was I think you said that you had 56% higher.
Private mid production.
Sounds like you made the acquisition to advance our efforts there.
How are you able to achieve such as <unk>.
A large growth in your production.
How should we think about your ability to grow the production in the future.
Well I think the acquisition, we did was actually a tool and dye company locally to where <unk> is located and it was a it was just a small acquisition to make sure that we locked up their expertise.
Never we need it.
When any of our machines or any of our any of.
Of our operations are struggling or we hit a hiccup. So we were we were very happy to acquire that I don't I don't believe that.
Was a contributor to the increase in production I think the increase in production.
It is something we've been working on for a number of quarters, where we have been able to.
Get all of our all of our production operating.
24, seven and really maxing out what our.
At the very top of our capabilities are and we were able to to stay running.
With all of our production lines.
For this quarter, So a testament to Brett and Jamie.
At silver town.
They they really.
Hit it out of the park this quarter and it was particularly good timing.
For us because we had plenty of demand for the product and once again.
We maximized our performance by having product available when our competitors did not or were limited in what they had so I really think.
As you have seen over time now all of these parts of the business Thats fully integrated now really when they all work together the potential is tremendous and I think we.
We got that done this quarter.
Alright.
Thank you for the explanation of great right.
Three things that are having.
Having an impact on your business.
Historically, I think would impact your business and I'm trying to understand because I feel like some of these things are moving in different directions. So the first one is geopolitical.
Especially on a global basis that seems to be kind of a persistence.
I would think tailwind and then macroeconomic I'm not sure to what extent, it's a positive or negative and then third.
Interesting, how well Youre managing earnings.
The movements in precious metal prices up and down in gold and silver.
So how is it that youre able to.
<unk> generates such impressive profit.
The movement of Goldman Silver.
Maybe not necessarily favorable maybe that's favorable and I'm just misinterpreting it.
Yes.
I think we will start there we've always said that volatility in the spot prices is really good for us and.
Particularly when we have.
Dips and significant dips and I would focus that on silver.
In this quarter that we're currently reporting we did have one or two.
Instances, where silver made new lows and that.
Not really.
Kind of supercharge is our demand at the DTC level as well as at the wholesale level because as we've said many times before.
The silver buyers in particular tend to buy the dips.
And then.
Quickly thereafter.
We had recovery in and then traded up towards recent the recent highs within the quarter. So we just had a very.
Large range of prices in gold and silver in the in Q1 and I think.
That just drove a lot of demand.
Once again.
<unk> was well positioned at all levels to take advantage of that and I think that's the common theme that we talk about is it positioning ourselves being ready to take advantage of opportunities when they are there.
Now obviously throughout this quarter.
We had a.
Fairly robust.
Quarter.
Yes.
Across all all 90 days I think we had a few slow weeks in August but we were we were very very active in July and September .
<unk> was particularly strong for us and a lot of it had to do with this volatility.
Whenever you see big moves.
In the price and I can kind of.
Kind of maybe frame that a little bit.
This quarter.
Q2, now I'm talking about.
<unk> seen a couple of days and the recent just in the recent weeks that gold had a $50 move in the same day and one day.
It's a very significant move for us and that drives a lot of activity.
<unk> had two days in the last few weeks, where it had a dollar move in a single day again, that's the type of volatility that is going to play well for us.
And I think it.
It has a little bit to do back to the initial part of your question as it relates to macro economic and just just overall supply demand imbalances.
As I said a year ago inflation is good for us and I said I didn't think it was transitory and it wasn't.
And it continues to drive.
Good things in our business.
And we're benefiting from that.
The continued.
Polarization in political turmoil again very good for us so.
Think I hit everything in your question, but.
Yes, you did.
So last question for me and again, congrats on a very impressive quarter. So you acquired some of the assets from BG ASC It sounds like Youre talking about potential geographic expansion.
At a high level, how should we think about your potential future M&A activities.
I believe you should think about us as being very active.
I think we are we believe there there is.
Great opportunity for US right now, we believe that moat around a mark is wider than ever.
We do believe that.
The opportunities are presenting themselves because of what we've done with the company I think.
The strength of our balance sheet right now is unbelievable and over $500 million and shareholder equity with no long term debt.
We are set up really well to take advantage of opportunities and we think.
We feel really good about this bgs CDO.
Early indications.
Occasions are.
The return on the investment.
For us will be even quicker than we anticipated.
We just believe that that our model and our ability to plug these businesses in.
And move them.
And into our ecosystem.
Can improve the performance of these acquisitions and we just feel that we have a very good advantage here and like I said I expect us to be very active.
We're very excited to hear that again, congrats on the quarter.
Thank you.
Thank you very much. Your next question is coming from Greg <unk> of Northland Securities. Greg Your line is live.
Great. Thanks for taking the questions, Hey, Greg Thor and Kathleen.
Wanted to ask if youre seeing any changing in buying patterns from customers.
And also just wanted to follow up on the <unk>.
Congrats on the gross margin improvement and really all around result on that regard but.
Regarding the improvement I'm wondering if you could just maybe discuss.
Is it mostly coming from increased spreads on lower prices of metals or maybe you could kind of discuss maybe that versus more in house production seeing higher margins, there or anything on the mix shift from too.
Yes.
I think that.
Those who follow us know that we make it a good amount of our gross profit is on silver and particularly in one ounce and 10 ounce in 100 ounce silver products.
We make more money.
Those products, if we make them ourselves and manufacture them ourselves and we collect just a bigger piece of the overall gross profit chain.
I think that that right now.
Youre seeing a company that has really built out and is touching.
More more wide and broader demographics than we've ever touched before.
Both.
The wholesale level as well as at the retail level at the DTC side.
We're just we're just able to accommodate.
More ounces and I would point to the ounces this quarter and silver in particular.
That was a very big number for us and we did it.
We didnt strained to do it.
We have been able to keep the raw metal flowing through our manufacturing businesses, we've been able to avoid.
Logistics and supply chain.
Hiccups that others have had trouble with and it just says a lot about from our traders to our mid teen business to our friends at <unk>.
Semi and then all the way to DC DTC. So I think we we definitely.
<unk>.
Really well.
Our vision of what we're doing really came together this quarter and it's certainly we feel like initially in Q2, we're seeing some of the same same at the same the same performance.
I think that.
When you talk about where it where it's coming from.
And are there any changes.
I touched on this a little bit last call we continue to see.
A very surprising.
Positive.
Size of purchases at our DTC segment.
We're continuing to see very large first time buys and very large second and third.
Repeat customer business at very large levels and I would say that of all the things that that are.
<unk> that we feel right now is just a a much.
Ah much when I look at like our top individual transactions at DTC for the week or for the month.
We're just seeing a.
A large number of first time people coming in.
With very large purchases and mostly we're seeing some real positive on gold product that we're able to source.
As well as the smaller silver buyers.
And then just the numbers on new users.
And those smaller invoices are also growing so it is a.
It's a.
A good time for us and we're very very pleased with everybody at a mark that they've been able to pick up the slack and we have not really had any down days and we have not really missed any of the opportunity and I think thats just.
It really just great news.
It relates to.
To what our employees are able to do.
Really appreciate all that color Greg.
Great to hear about the strong repeat purchases and strong purchase of our new customers too.
I did want to ask.
In relation to the short term borrowing.
Due to the fund metals purchases.
Do you see any are you seeing impact I guess from increased rates and.
Or do you expect to.
Regarding <unk>, certainly certainly interest rates.
Have affected us.
And we do pay a higher rate on our short term borrowings because it's tied to an index.
Or a benchmark and I think that we have experienced increased borrowing costs.
If you look at the actual metrics and if you do.
Dig into our our Q a little bit.
I would I would guess and I haven't looked at the number myself, but I would guess that our our actual gross dollars of interest paid probably hasnt fluctuated.
All that much with the with the increase because I believe we're just borrowing less money.
We've had two really strong quarters.
Back to back.
We've generated a tremendous amount of free cash.
We're just borrowing less dollars right now and we're in essence self funding so it's kind of.
We generally say that when rates rise, we should be able to outperform the rate increase and I believe that's happening right now whether it would be passing on.
Increased costs to our to our customers as it relates to where.
Where we lend to people or whether it's just we're not borrowing as many gross dollars because it's because our performance has been exceptional so.
That's kind of.
Everything there.
Sure Yes.
Very helpful.
Last one from me you talked about.
For expansion on the minting facility.
Just wondering if you could discuss that a little bit more and kind of the timing around it.
Okay.
Yes, I mean, when we talk about maintain we talk about two different.
Two different.
Entities, we have our minority interest in Sunshine Mint.
And we've talked about that before and we're very pleased with.
With.
Tom power and Jason and his team at SMIC are doing there.
And they.
Have.
I have worked very hard the last couple of quarters to two.
To integrate some new machinery.
To raise capacity in and.
Hey, Mark has been the beneficiary of that we've been able to to acquire.
Not only just regular Sunshine mint products, but we've also been able to create some higher margin specialty products with with that semi that's working very well.
At the silver time level, Jamie and brand or are getting everything they can out of our facility I will say that.
We have.
In the last 60 days, we've acquired some more.
Raw land in in Winchester, and we're starting to look at how we can expand in Winchester, Indiana at the silver time level, and we think that's going to be a great opportunity for us.
To at least have plans ready to go.
In the event that this demand continues and and we just need more capacity. So so we're.
We.
It's all part of the like.
I said, the vertical integration and we want to.
We want to smartly and cautiously.
Expand our production and what we can have available to sell.
Without getting too far over our skis and grow too quickly.
But to this point I think.
We're very comfortable with the pace.
Looking out the next two to three years.
Where we see a clear path to continuing to dominate this space.
Great to hear thanks.
Thanks, and congrats again.
Thank you.
Thank you very much. Your next question is coming from Andrew Scott of Roth Capital Partners.
Your line is live.
Good afternoon, and congrats on the strong results.
Most of my questions have been answered so just a quick one on cyber metals were a few quarters out from the launch.
We've seen some healthy growth, especially in the last few quarters do you guys kind of clear picture now on what you see as the potential of this business.
And also just I know you talked about potential marketing efforts.
To drive customers to the platform.
Have you guys gone.
Done any marketing and how has that progressed as well.
Yes, we have pretty much finished our testing with the existing DTC customers at JM buoyant.
And I think that most of the growth Youre seeing is coming from that customer base.
Think that we've converted as many customers as maybe we hoped we would I think that's a function of the demographic and the like.
The makeup of the J M B customer, who has always been a physical metals customer that wants to take delivery of that once the metal shipped to them.
I think that.
We see some conversion.
But I believe that the.
The physical metal customers is probably not.
The best place for us to be fishing for that type of customer for cyber metals I think we're going to continue to see steady growth there.
We have started to test.
Some marketing.
Outside of the normal channels that you would see JM bullion or gold line or any of our DTC brands advertising and and we have started to test.
Some some newer.
More tech related innovative marketing that we've been able to do to try to try to touch and convert customers that don't even know who JM bullion or hey, Mark is so we are doing that we're seeing some results.
We look forward to continuing to update everybody on how this goes.
And happy with the performance, but I would say, it's probably going to be a little bit slower.
Little slower.
Climb than maybe we initially thought but the system is working great. The platform is working good the logistics of managing and servicing the trades as we have no problem whatsoever. So we have a great platform. I think now is just we're going to we're going to need deficient in a little different pond to <unk>.
<unk> customers for cyber metals.
Thanks for the color and congrats again on the strong results.
Okay. Thank you.
Ladies and gentlemen, if you do have any remaining questions or comments. Please indicate so now by pressing star one on your telephone handset.
Thank you.
Okay. We appear to have no further questions in the queue. At this time that concludes our question and answer session I would now like to turn the call back over to Mr. Roberts for his closing remarks.
Thank you very much I'd like to thank our shareholders for joining our call today. Thank you for your continued support and many thanks to our employees for their dedication and commitment to <unk> success, and we look forward to keeping you apprised of a Mark's progress moving forward. 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 Amos future plans objectives expectations performance events and alike are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095, and the Securities Exchange Act of 119.
34.
Future events risks and uncertainties individually or in the aggregate could cause actual results to differ materially from those expressed or implied in these statements.
Because that could cause actual results to differ include the following the failure to execute the companys growth strategy as planned greater than anticipated costs incurred to execute this strategy changes in the current domestic and international.
Political climate increased competition for a marks higher margin services, which could depress pricing the failure of the Companys business model to respond to changes in the market environment as anticipated general risks of doing business in the commodity market I know the business economic financial and governmental risks as described in the company.
<unk> public filings with the Securities and Exchange Commission.
Should believe estimate.
Correct intend anticipate foresee one and other similar expressions or variations thereof identify certain of such forward looking statements, which speak only as of the date on which they were made.
Any statements related to future.
Improved performance and estimates of revenues and earnings per share all forward looking statements. The company undertakes no obligation to publicly update or revise any forward looking statements.
I'll caution not to place undue reliance on these forward looking statements.
Finally, I would like to remind everyone that recording of todays call will be available for replay link.
A link in the investors section of the company's website. Thank you for joining us today for <unk> earnings call you may now disconnect.