Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

November 8, 2021

Documents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to ________

Commission File Number: 001-36347

 

A-MARK PRECIOUS METALS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

(State of Incorporation)

 

11-2464169

(IRS Employer I.D. No.)

 

2121 Rosecrans Ave. Suite 6300
El Segundo, CA 90245

(Address of principal executive offices)(Zip Code)

(310) 587-1477

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

AMRK

NASDAQ Global Select Market

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes. ☑   No. ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes. ☑   No. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

☐

 

Accelerated filer

☑

Non-accelerated filer

☐

 

Smaller reporting company

☑

 

 

 

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes. ☐   No. ☑

As of October 28, 2021, the registrant had 11,352,110 shares of common stock outstanding, par value $0.01 per share.

 

 

 

 

 

 

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

For the Three Months Ended September 30, 2021

TABLE OF CONTENTS

 

 

 

 

 

Page

PART I

 

 

 

 

 

Item 1.

Financial Statements

 

1

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

43

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

69

 

Item 4.

Controls and Procedures

 

69

 

 

 

 

 

PART II

 

 

 

 

 

Item 1.

Legal Proceedings

 

69

 

Item 1A.

Risk Factors

 

70

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

83

 

Item 3.

Defaults upon Senior Securities

 

83

 

Item 4.

Mine Safety Disclosures

 

83

 

Item 5.

Other Information

 

83

 

Item 6.

Exhibits

 

83

Signatures

 

 

 

84

 

PART I — FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

Index to the Condensed Consolidated Financial Statements and Notes thereof

 

 

Page

Condensed Consolidated Balance Sheets as of September 30, 2021 and June 30, 2021

2

Condensed Consolidated Statements of Income for the Three Months Ended September 30, 2021 and 2020

4

Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended September 30, 2021 and 2020

5

Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2021 and 2020

6

Notes to Condensed Consolidated Financial Statements

7

Note 1. Description of Business

7

Note 2. Summary of Significant Accounting Policies

8

Note 3. Assets and Liabilities, at Fair Value

18

Note 4. Receivables

21

Note 5. Secured Loans Receivable

21

Note 6. Inventories

23

Note 7. Property, Plant, and Equipment

25

Note 8. Goodwill and Intangible Assets

25

Note 9. Long-Term Investments

27

Note 10. Accounts Payable and Other Current Liabilities

27

Note 11. Derivative Instruments and Hedging Transactions

27

Note 12. Income Taxes

30

Note 13. Related Party Transactions

32

Note 14. Financing Agreements

34

Note 15. Commitments and Contingencies

35

Note 16. Stockholders' Equity

36

Note 17. Customer and Supplier Concentrations

38

Note 18. Segments and Geographic Information

39

Note 19. Subsequent Events

42

 

 

 

 

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except for share data)

 

 

 

September 30,

2021

 

 

 

June 30,

2021

 

ASSETS

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash(1)

 

$

29,609

 

 

 

$

101,405

 

Receivables, net

 

 

104,522

 

 

 

 

89,000

 

Derivative assets

 

 

69,785

 

 

 

 

44,536

 

Secured loans receivable(1)

 

 

110,323

 

 

 

 

112,968

 

Precious metals held under financing arrangements(1)

 

 

130,618

 

 

 

 

154,742

 

Inventories:

 

 

 

 

 

 

 

 

 

Inventories(1)

 

 

346,285

 

 

 

 

256,991

 

Restricted inventories

 

 

219,420

 

 

 

 

201,028

 

 

 

 

565,705

 

 

 

 

458,019

 

Prepaid expenses and other assets(1)

 

 

4,074

 

 

 

 

3,557

 

Total current assets

 

 

1,014,636

 

 

 

 

964,227

 

Operating lease right of use assets

 

 

7,346

 

 

 

 

5,702

 

Property, plant, and equipment, net

 

 

8,913

 

 

 

 

8,609

 

Goodwill

 

 

100,943

 

 

 

 

100,943

 

Intangibles, net

 

 

85,761

 

 

 

 

93,633

 

Long-term investments

 

 

29,683

 

 

 

 

18,467

 

Total assets

 

$

1,247,282

 

 

 

$

1,191,581

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Lines of credit

 

$

194,000

 

 

 

$

185,000

 

Liabilities on borrowed metals

 

 

74,618

 

 

 

 

91,866

 

Product financing arrangements

 

 

219,420

 

 

 

 

201,028

 

Accounts payable and other current liabilities

 

 

178,798

 

 

 

 

200,351

 

Derivative liabilities

 

 

70,348

 

 

 

 

7,539

 

Accrued liabilities(1)

 

 

12,836

 

 

 

 

18,785

 

Income tax payable

 

 

7,140

 

 

 

 

5,016

 

Total current liabilities

 

 

757,160

 

 

 

 

709,585

 

Notes payable(1)

 

 

93,446

 

 

 

 

93,249

 

Deferred tax liabilities

 

 

18,091

 

 

 

 

19,514

 

Other liabilities

 

 

6,958

 

 

 

 

5,291

 

Total liabilities

 

 

875,655

 

 

 

 

827,639

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, authorized 10,000,000 shares; issued

   and outstanding: none as of September 30, 2021 and June 30, 2021

 

 

—

 

 

 

 

—

 

Common stock, par value $0.01; 40,000,000 shares authorized; 11,351,897

   and 11,229,657 shares issued and outstanding as of September 30, 2021

   and June 30, 2021, respectively

 

 

114

 

 

 

 

113

 

Additional paid-in capital

 

 

154,619

 

 

 

 

150,420

 

Retained earnings

 

 

215,475

 

 

 

 

212,090

 

Total A-Mark Precious Metals, Inc. stockholders’ equity

 

 

370,208

 

 

 

 

362,623

 

Noncontrolling interests

 

 

1,419

 

 

 

 

1,319

 

Total stockholders’ equity

 

 

371,627

 

 

 

 

363,942

 

Total liabilities, noncontrolling interests and stockholders’ equity

 

$

1,247,282

 

 

 

$

1,191,581

 

 

(1)

Includes amounts of the consolidated variable interest entity, which is presented separately in the table below.

 

See accompanying Notes to Condensed Consolidated Financial Statements

2

 

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands)

In September 2018, AM Capital Funding, LLC. (“AMCF”), a wholly owned subsidiary of Collateral Finance Corporation (CFC”), completed an issuance of Secured Senior Term Notes, Series 2018-1, Class A in the aggregate principal amount of $72.0 million and Secured Subordinated Term Notes, Series 2018-1, Class B in the aggregate principal amount of $28.0 million (collectively, the "Notes").  The Class A Notes bear interest at a rate of 4.98% and the Class B Notes bear interest at a rate of 5.98%.  The Notes have a maturity date of December 15, 2023.

The Company consolidates a variable interest entity ("VIE") if the Company is considered to be the primary beneficiary.  AMCF is a VIE because its equity may be insufficient to maintain its on-going collateral requirements without additional financial support from the Company.  The securitization is primarily secured by cash, bullion loans, and precious metals, and the Company is required to continuously hedge the value of certain collateral and make future contributions as necessary.  The Company is the primary beneficiary of this VIE because the Company has the right to determine the type of collateral (i.e., cash, secured loans, or precious metals) placed into the entity, has the right to receive (and has received) the proceeds from the securitization transaction, earns on-going interest income from the secured loans (subject to collateral requirements), and has the obligation to absorb losses should AMCF's interest expense and other costs exceed its interest income.

The following table presents the assets and liabilities of this VIE, which are included in the condensed consolidated balance sheets above. The holders of the Notes have a first priority security interest in the assets as shown in the table below, which are in excess of the Notes' aggregate principal amount. Additionally, the liabilities of the VIE include intercompany balances, which are eliminated in consolidation. (See Note 14.)

 

 

 

September 30,

2021

 

 

 

June 30,

2021

 

ASSETS OF THE CONSOLIDATED VIE

 

 

 

 

 

 

 

 

 

Cash

 

$

5,162

 

 

 

$

2,877

 

Secured loans receivable

 

 

88,631

 

 

 

 

84,817

 

Precious metals held under financing arrangements

 

 

17,848

 

 

 

 

23,976

 

Inventories

 

 

2,675

 

 

 

 

2,532

 

Prepaid expenses and other assets

 

 

69

 

 

 

 

23

 

Total assets of the consolidated variable interest entity

 

$

114,385

 

 

 

$

114,225

 

LIABILITIES OF THE CONSOLIDATED VIE

 

 

 

 

 

 

 

 

 

Deferred payment obligations(1)

 

$

21,040

 

 

 

$

20,539

 

Accrued liabilities

 

 

880

 

 

 

 

847

 

Notes payable(2)

 

 

98,446

 

 

 

 

98,249

 

Total liabilities of the consolidated variable interest entity

 

$

120,366

 

 

 

$

119,635

 

 

 

 

 

 

 

 

 

 

 

 

(1)

This is an intercompany balance, which is eliminated in consolidation and hence is not shown on the consolidated balance sheets.

(2)

$5.0 million of the Notes are held by the Company, which is eliminated in consolidation and hence is not shown on the consolidated balance sheets.

 

See accompanying Notes to Condensed Consolidated Financial Statements

3

 

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except for share and per share data)

 

 

 

Three Months Ended

 

 

 

September 30,

2021

 

 

 

September 30,

2020

 

Revenues

 

$

2,013,971

 

 

 

$

1,866,116

 

Cost of sales

 

 

1,957,962

 

 

 

 

1,829,971

 

Gross profit

 

 

56,009

 

 

 

 

36,145

 

Selling, general, and administrative expenses

 

 

(16,677

)

 

 

 

(9,505

)

Depreciation and amortization expense

 

 

(8,271

)

 

 

 

(501

)

Interest income

 

 

5,531

 

 

 

 

3,983

 

Interest expense

 

 

(5,473

)

 

 

 

(4,293

)

Earnings from equity method investments

 

 

1,489

 

 

 

 

4,126

 

Other income, net

 

 

409

 

 

 

 

359

 

Unrealized losses on foreign exchange

 

 

(224

)

 

 

 

(97

)

Net income before provision for income taxes

 

 

32,793

 

 

 

 

30,217

 

Income tax expense

 

 

(6,669

)

 

 

 

(6,511

)

Net income

 

 

26,124

 

 

 

 

23,706

 

Net income attributable to noncontrolling interests

 

 

100

 

 

 

 

623

 

Net income attributable to the Company

 

$

26,024

 

 

 

$

23,083

 

Basic and diluted net income per share attributable

   to A-Mark Precious Metals, Inc.:

 

 

 

 

 

 

 

 

 

Basic

 

$

2.31

 

 

 

$

3.28

 

Diluted

 

$

2.17

 

 

 

$

3.09

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

 

11,262,600

 

 

 

 

7,034,700

 

Diluted

 

 

12,009,300

 

 

 

 

7,475,000

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

 

 

 

4

 

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except for share data)

 

 

 

Common

Stock

(Shares)

 

 

Common

Stock

 

 

Additional

Paid-in

Capital

 

 

Retained

Earnings

 

 

Total

A-Mark

Precious

Metals, Inc.

Stockholders'

Equity

 

 

Non-

Controlling

Interests

 

 

Total

Stockholders’

Equity

 

Balance, June 30, 2020

 

 

7,031,500

 

 

$

71

 

 

$

27,289

 

 

$

73,644

 

 

$

101,004

 

 

$

3,890

 

 

$

104,894

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

23,083

 

 

 

23,083

 

 

 

623

 

 

 

23,706

 

Share-based compensation

 

 

—

 

 

 

—

 

 

 

178

 

 

 

—

 

 

 

178

 

 

 

—

 

 

 

178

 

Net settlement on issuance of common shares on exercise of options

 

 

35,030

 

 

 

—

 

 

 

416

 

 

 

—

 

 

 

416

 

 

 

—

 

 

 

416

 

Dividends declared ($1.50 per common share)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(10,553

)

 

 

(10,553

)

 

 

—

 

 

 

(10,553

)

Balance, September 30, 2020

 

 

7,066,530

 

 

 

71

 

 

$

27,883

 

 

$

86,174

 

 

$

114,128

 

 

$

4,513

 

 

$

118,641

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2021

 

 

11,229,657

 

 

$

113

 

 

$

150,420

 

 

$

212,090

 

 

$

362,623

 

 

$

1,319

 

 

$

363,942

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

26,024

 

 

 

26,024

 

 

 

100

 

 

 

26,124

 

Share-based compensation

 

 

—

 

 

 

—

 

 

 

473

 

 

 

—

 

 

 

473

 

 

 

—

 

 

 

473

 

Net settlement on issuance of common shares on exercise of options

 

 

60,650

 

 

 

—

 

 

 

749

 

 

 

—

 

 

 

749

 

 

 

—

 

 

 

749

 

Common stock issued for increase in long term investment

 

 

61,590

 

 

 

1

 

 

 

2,977

 

 

 

—

 

 

 

2,978

 

 

 

—

 

 

 

2,978

 

Dividends declared ($2.00 per common share)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(22,639

)

 

 

(22,639

)

 

 

—

 

 

 

(22,639

)

Balance, September 30, 2021

 

 

11,351,897

 

 

$

114

 

 

$

154,619

 

 

$

215,475

 

 

$

370,208

 

 

$

1,419

 

 

$

371,627

 

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

 

5

 

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

 

Three Months Ended September 30,

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

26,124

 

 

$

23,706

 

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

8,271

 

 

 

501

 

Amortization of loan cost

 

 

569

 

 

 

396

 

Deferred income taxes

 

 

(1,423

)

 

 

—

 

Interest added to principal of secured loans

 

 

(5

)

 

 

(4

)

Share-based compensation

 

 

473

 

 

 

178

 

Earnings from equity method investments

 

 

(1,489

)

 

 

(4,126

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

(15,522

)

 

 

(26,526

)

Secured loans receivable

 

 

25

 

 

 

(358

)

Secured loans made to affiliates

 

 

3,032

 

 

 

4,642

 

Derivative assets

 

 

(25,249

)

 

 

(67,275

)

Precious metals held under financing arrangements

 

 

24,124

 

 

 

19,821

 

Inventories

 

 

(107,686

)

 

 

(91,900

)

Prepaid expenses and other assets

 

 

(689

)

 

 

(292

)

Accounts payable and other current liabilities

 

 

(21,553

)

 

 

69,992

 

Derivative liabilities

 

 

62,809

 

 

 

(11,917

)

Liabilities on borrowed metals

 

 

(17,248

)

 

 

(14,454

)

Accrued liabilities

 

 

(6,420

)

 

 

(1,227

)

Income tax payable

 

 

2,124

 

 

 

771

 

Net cash used in operating activities

 

 

(69,733

)

 

 

(98,072

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures for property, plant, and equipment

 

 

(709

)

 

 

(476

)

Purchase of long-term investments

 

 

(6,250

)

 

 

—

 

Secured loans receivable, net

 

 

(407

)

 

 

(24,793

)

Net cash used in investing activities

 

 

(7,366

)

 

 

(25,269

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Product financing arrangements, net

 

 

18,392

 

 

 

26,921

 

Dividends paid

 

 

(22,639

)

 

 

(10,553

)

Borrowings and repayments under lines of credit, net

 

 

9,000

 

 

 

79,000

 

Debt funding issuance costs

 

 

(199

)

 

 

(398

)

Net settlement on issuance of common shares on exercise of options

 

 

749

 

 

 

416

 

Net cash provided by financing activities

 

 

5,303

 

 

 

95,386

 

Net decrease in cash, cash equivalents, and restricted cash

 

 

(71,796

)

 

 

(27,955

)

Cash, cash equivalents, and restricted cash, beginning of period

 

 

101,405

 

 

 

52,325

 

Cash, cash equivalents, and restricted cash, end of period

 

$

29,609

 

 

$

24,370

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

5,839

 

 

$

3,737

 

Income taxes paid

 

$

5,967

 

 

$

6,726

 

Income taxes refunded

 

$

—

 

 

$

(1,044

)

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Interest added to principal of secured loans

 

$

5

 

 

$

4

 

Fair value of shares exchanged for increase in long term investment

 

$

2,978

 

 

$

—

 

Addition of right of use assets under operating lease obligations

 

$

2,013

 

 

$

—

 

 

See accompanying Notes to Condensed Consolidated Financial Statements

6

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

1. DESCRIPTION OF BUSINESS

Basis of Presentation

The condensed consolidated financial statements comprise those of A-Mark Precious Metals, Inc. ("A-Mark" or the "Company"), its wholly-owned condensed consolidated subsidiaries, and its joint ventures in which the Company has a controlling interest.

Business Segments

The Company conducts its operations in three reportable segments: (i) Wholesale Sales & Ancillary Services (formerly known as Wholesale Trading & Ancillary Services), (ii) Direct-to-Consumer (formerly known as Direct Sales), and (iii) Secured Lending.  Each of these reportable segments represents an aggregation of operating segments that meets the aggregation criteria set forth in the Segment Reporting Topic 280 of the Financial Accounting Standards Board’s ("FASB") Accounting Standards Codification (“ASC”).  (See Note 18.)

Wholesale Sales & Ancillary Services

The Company operates its Wholesale Sales & Ancillary Services segment through A-Mark Precious Metals, Inc., and its wholly-owned subsidiaries, A-Mark Trading AG (“AMTAG”), Transcontinental Depository Services, LLC ("TDS" or “Storage”), A-M Global Logistics, LLC (“AMGL” or "Logistics"), and AM&ST Associates, LLC ("AMST" or the "SilverTowne Mint").

The Wholesale Sales & Ancillary Services segment operates as a full-service precious metals company. We offer gold, silver, platinum, and palladium in the form of bars, plates, powder, wafers, grain, ingots, and coins. Our Industrial unit services manufacturers and fabricators of products utilizing or incorporating precious metals. Our Coin and Bar unit deals in over 1,000 coin and bar products in a variety of weights, shapes, and sizes for distribution to dealers and other qualified purchasers.  We have a marketing support office in Vienna, Austria, and a trading center in El Segundo, California.  The trading center, for buying and selling precious metals, is available to receive orders 24 hours every day, even when many major world commodity markets are closed. In addition to Wholesale Sales activity, A-Mark offers its customers a variety of ancillary services, including financing, storage, consignment, logistics, and various customized financial programs.  As a U.S. Mint-authorized purchaser of gold, silver, platinum, and palladium coins, A-Mark purchases product directly from the U.S. Mint and other sovereign mints for sale to its customers.

Through its wholly-owned subsidiary AMTAG, the Company promotes A-Mark's products and services to the international market. Through our wholly-owned subsidiary TDS, we offer a variety of managed storage options for precious metals products to financial institutions, dealers, investors, and collectors around the world.

The Company's wholly-owned subsidiary AMGL is based in Las Vegas, Nevada, and provides our customers an array of complementary services, including receiving, handling, inventorying, processing, packing, and shipping of precious metals and custom coins on a secure basis.

Through its wholly-owned subsidiary AMST, the Company designs and produces minted silver products. Our SilverTowne Mint operations allow us to provide greater product selection to our customers and greater pricing stability within the supply chain, as well as to gain increased access to silver during volatile market environments, which have historically created higher demand for precious metals products.

Direct-to-Consumer

The Company operates its Direct-to-Consumer segment through its wholly-owned subsidiaries JM Bullion, Inc. (“JMB”) and Goldline, Inc. (“Goldline”.)  JMB has four wholly-owned subsidiaries: Gold Price Group, Inc. (“GPG”), Silver.com, Inc. (“Silver.com”), Goldline Metal Buying Corp. (“GMBC”), and Provident Metals Corp. (“PMC”).  Goldline, Inc. owns 100% of AMIP, LLC ("AMIP"), and has a 50% ownership interest in Precious Metals Purchasing Partners, LLC ("PMPP".)  As the context requires, references in these Notes to “JMB” may include GPG, Silver.com, GMBC and PMC, and references to “Goldline” may include AMIP and PMPP.

JMB is a leading e-commerce retailer providing access to a broad array of gold, silver, copper, platinum, and palladium products through its websites and marketplaces. JMB operates five separately branded, company-owned websites targeting specific niches within the precious metals retail market.  The Company acquired the 79.5% interest in JMB that it did not previously own in March 2021.  

The Company acquired Goldline in August 2017 through an asset purchase transaction with Goldline, LLC, which had been in operation since 1960. Goldline is a direct retailer of precious metals to the investor community, and markets its precious metal products on television, radio, and the internet, as well as through customer service outreach. Goldline’s subsidiary AMIP manages its intellectual property. PMPP was formed in fiscal 2019 pursuant to terms of a joint venture agreement, for the purpose of purchasing precious metals

7

from the partners' retail customers, and then reselling the acquired products back to affiliates of the partners.  PMPP commenced its operations in fiscal 2020.

Pro Forma Information for the Acquisition of JMB

The following pro forma consolidated results of operations of the Company for the three months ended September 30, 2020, assumes that the acquisition of JMB occurred as of July 1, 2019.

 

in thousands

 

 

Three Months Ended

 

 

 

 

September 30,

2020

 

 

Revenue

 

 

$

2,013,762

 

 

Net income

 

 

$

36,540

 

 

 

The above pro forma supplemental information does not purport to be indicative of what the Company's operations would have been had these transactions occurred on July 1, 2019 and should not be considered indicative of future operating results. The Company believes the assumptions used provide a reasonable basis for reflecting the significant pro forma effects directly attributable to the acquisition of JMB.  

The unaudited pro forma information accounts for: (i) eliminations of equity investment income recognized prior to the acquisition and transactions between JMB and A-Mark; and (ii) adjustments to the income tax provision, revenue for JMB sales orders that were shipped but not delivered as of period end; stock compensation expense, and the amortization expense related to the acquired finite-lived intangible assets at fair value.

Secured Lending

The Company operates its Secured Lending segment through its wholly-owned subsidiary, Collateral Finance Corporation, LLC.  including its two wholly-owned subsidiaries AM Capital Funding, LLC (“AMCF”), and CFC Alternative Investments (“CAI”), (collectively “CFC”).

Collateral Finance Corporation, LLC. is a California licensed finance lender that originates and acquires commercial loans secured by bullion and numismatic coins. CFC's customers include coin and precious metal dealers, investors, and collectors.

AM Capital Funding, LLC (“AMCF”), a wholly-owned subsidiary of CFC, was formed for the purpose of securitizing eligible secured loans of CFC.  AMCF issued and administers the Notes. (See Note 14.)

CAI is a holding company that has a 50%-ownership stake in CCP. The purpose of CCP is to provide capital to fund commercial loans secured by graded sport cards and sports memorabilia.

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The condensed consolidated financial statements reflect the financial condition, results of operations, statements of stockholders’ equity, and cash flows of the Company, and were prepared using accounting principles generally accepted in the United States (“U.S. GAAP”). The Company consolidates its subsidiaries that are wholly-owned, and majority owned, and entities that are variable interest entities where the Company is determined to be the primary beneficiary.  The Company’s condensed consolidated financial statements include the accounts of: A-Mark, AMTAG, TDS, AMGL, AMST, JMB, Goldline, and CFC (collectively the “Company”).  Intercompany accounts and transactions are eliminated.

Comprehensive Income

For the three months ended September 30, 2021 and 2020, there were no items that gave rise to other comprehensive income or loss, and, as a result net income equaled comprehensive income.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. These estimates include, among others, determination of fair value, allowances for doubtful accounts, impairment assessments of property, plant and equipment and intangible assets, valuation allowance determination on deferred tax assets, determining the

8

incremental borrowing rate for calculating right of use assets and lease liabilities, and revenue recognition judgments. Significant estimates also include the Company's fair value determination with respect to its financial instruments, intangible assets, and precious metals inventory. Actual results could materially differ from these estimates.

 

Reclassification

In our Condensed Consolidated Statements of Income, we present depreciation and amortization expense as a separate line item.  In prior fiscal years, depreciation and amortization expense was a component of the selling, general, and administrative expenses line item.

Unaudited Interim Financial Information

The accompanying interim condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These interim condensed consolidated financial statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary to present fairly the condensed consolidated balance sheets, condensed consolidated statements of income, condensed consolidated statements of stockholders’ equity, and condensed consolidated statements of cash flows for the periods presented in accordance with U.S. GAAP. Operating results for the three months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2022 or for any other interim period during such fiscal year. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the SEC. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the fiscal year ended 2021 (the “2021 Annual Report”), as filed with the SEC. Amounts related to disclosure of June 30, 2021 balances within these interim condensed consolidated financial statements were derived from the audited consolidated financial statements and notes thereto included in the 2021 Annual Report.

Fair Value Measurement

The Fair Value Measurements and Disclosures Topic 820 of the ASC ("ASC 820"), creates a single definition of fair value for financial reporting. The rules associated with ASC 820 state that valuation techniques consistent with the market approach, income approach, and/or cost approach should be used to estimate fair value. Selection of a valuation technique, or multiple valuation techniques, depends on the nature of the asset or liability being valued, as well as the availability of data. (See Note 3.)

Concentration of Credit Risk

Cash is maintained at financial institutions, and, at times, balances may exceed federally insured limits. The Company has not experienced any losses related to these balances.

Assets that potentially subject the Company to concentrations of credit risk consist principally of receivables, loans of inventory to customers, and inventory hedging transactions. Based on an assessment of credit risk, the Company typically grants collateralized credit to its customers. Credit risk with respect to loans of inventory to customers is minimal. The Company enters into inventory hedging transactions, principally utilizing metals commodity futures contracts traded on national futures exchanges or forward contracts with credit worthy financial institutions.  All of our commodity derivative contracts are under master netting arrangements and include both asset and liability positions. Substantially all of these transactions are secured by the underlying metals positions.

Foreign Currency

The functional currency of the Company is the United States dollar ("USD").  The functional currency of the Company's wholly-owned foreign subsidiary, AMTAG, is USD, but it maintains its books of record in the European Union Euro. The Company remeasures the financial statements of AMTAG into USD. The remeasurement of local currency amounts into USD creates remeasurement gains and losses, which are included in the consolidated statements of income.

To manage the effect of foreign currency exchange fluctuations, the Company utilizes foreign currency forward contracts.  These derivatives generate gains and losses when settled and/or marked-to-market.

Business Combination

The Company accounts for business combinations by applying the acquisition method in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations. The Company evaluates each purchase transaction to determine whether the acquired assets meet the definition of a business. Transaction costs related to the acquisition of a business are expensed as incurred and excluded from the fair value of consideration transferred. The identifiable assets acquired, liabilities assumed and noncontrolling interests, if any, in an acquired entity are recognized and measured at their estimated fair values. The excess of the fair value of

9

consideration transferred over the fair values of identifiable assets acquired, liabilities assumed and noncontrolling interests, if any, in an acquired entity is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets and liabilities.  Net cash paid to acquire a business is classified as investing activities on the accompanying condensed consolidated statements of cash flow.

For a given acquisition, the Company may identify certain pre-acquisition uncertainties as of the acquisition date and may extend our review and evaluation of these pre-acquisition uncertainties throughout the measurement period in order to obtain sufficient information to assess whether we include these uncertainties as a part of the purchase price allocation and, if so, to determine the estimated amounts. If we determine that a pre-acquisition contingency (non-income tax related) is probable in nature and estimable as of the acquisition date, we record our best estimate for such an uncertain possibility as a part of the preliminary purchase price allocation. We often continue to gather information and evaluate our pre-acquisition uncertainties throughout the measurement period and if we make changes to the amounts recorded or if we identify additional pre-acquisition uncertainties during the measurement period, such amounts will be included in the purchase price allocation during the measurement period and, subsequently, in our results of operations.

Uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. We review these items during the measurement period as we continue to actively seek and collect information relating to facts and circumstances that existed at the acquisition date. Changes to these uncertain tax positions and tax related valuation allowances made subsequent to the measurement period, or if they relate to facts and circumstances that did not exist at the acquisition date, are recorded in the "Provision for income taxes" line of the Company’s condensed consolidated statements of income.  (See Note 1.)

Variable Interest Entity

A variable interest entity ("VIE") is a legal entity that has either (i) a total equity investment that is insufficient to finance its activities without additional subordinated financial support or (ii) whose equity investors as a group lack the ability to control the entity’s activities or lack the ability to receive expected benefits or absorb obligations in a manner that is consistent with their investment in the entity.

A VIE is consolidated for accounting purposes by its primary beneficiary, which is the party that has both the power to direct the activities that most significantly impact the VIEs economic performance, and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The Company consolidates VIEs when it is deemed to be the primary beneficiary. Management regularly reviews and re-evaluates its previous determinations regarding whether it holds a variable interest in potential VIEs, the status of an entity as a VIE, and whether the Company is required to consolidate such VIEs in its condensed consolidated financial statements.

AMCF, a wholly owned subsidiary of CFC, is a special purpose entity ("SPE") formed as part of a securitization transaction in order to isolate certain assets and distribute the cash flows from those assets to investors. AMCF was structured to insulate investors from claims on AMCF’s assets by creditors of other entities.  The Company has various forms of on-going involvement with AMCF, which may include (i) holding senior or subordinated interests in AMCF; (ii) acting as loan servicer for a portfolio of loans held by AMCF; and (iii) providing administrative services to AMCF. AMCF is required to maintain separate books and records. The assets and liabilities of this VIE, as of September 30, 2021 and June 30, 2021, are indicated on the table that follows the condensed consolidated balance sheets.

AMCF is considered a VIE because its initial equity investment may be insufficient to maintain its on-going collateral requirements without additional financial support from the Company. The securitization is primarily secured by bullion loans and precious metals, and the Company is required to continuously hedge the value of certain collateral and make future contributions as necessary.  The Company is the primary beneficiary of this VIE because the Company has the right to determine the type of collateral (i.e., cash, secured loans, or precious metals), has the right to receive (and has received) the proceeds from the securitization transaction, earns on-going interest income from the secured loans (subject to collateral requirements), and has the obligation to absorb losses should AMCF's interest expense and other costs exceed its interest income. (See Note 14.)

10

 

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less, when purchased, to be cash equivalents. The Company did not have any cash equivalents as of September 30, 2021 and June 30, 2021.

Precious Metals held under Financing Arrangements

The Company enters into arrangements with certain customers under which A-Mark purchases precious metals from the customers which are subject to repurchase by the customer at the spot value of the product on the repurchase date. The precious metals purchased under these arrangements consist of rare and unique items, and therefore the Company accounts for these transactions as precious metals held under financing arrangements, which generate financing income rather than revenue earned from precious metals inventory sales. In these repurchase arrangements, the Company holds legal title to the metals and earns financing income for the duration of the agreement.

These arrangements are typically terminable by either party upon 14 days' notice.  Upon termination, the customer’s right to repurchase any remaining precious metal is forfeited, and the related precious metals are reclassified as inventory held for sale. As of September 30, 2021 and June 30, 2021, precious metals held under financing arrangements totaled $130.6 million and $154.7 million respectively.

The Company’s precious metals held under financing arrangements are marked-to-market.

Inventories

The Company's inventory, which consists primarily of bullion and bullion coins, is acquired and initially recorded at cost and then marked to fair market value.  The fair market value of the bullion and bullion coins comprises two components: (i) published market values attributable to the cost of the raw precious metal, and (ii) the premium paid at acquisition of the metal, which is attributable to the incremental value of the product in its finished goods form.  The market value attributable solely to such premium is readily determinable by reference to multiple reputable published sources.

The Company’s inventory, except for certain lower of cost or net realizable value basis products (as discussed below), are subsequently recorded at their fair market values, that is, "marked-to-market."  The daily changes in the fair market value of our inventory are offset by daily changes in the fair market value of hedging derivatives that are taken with respect to our inventory positions; both the change in the fair market value of the inventory and the change in the fair market value of these derivative instruments are recorded in cost of sales in the condensed consolidated statements of income.

While the premium component included in inventory is marked-to-market, our commemorative coin inventory, including its premium component, is held at the lower of cost or net realizable value, because the value of commemorative coins is influenced more by supply and demand determinants than on the underlying spot price of the precious metal content of the commemorative coins.  Unlike our bullion coins, the value of commemorative coins is not subject to the same level of volatility as bullion coins because our commemorative coins typically carry a substantially higher premium over the spot metal price than bullion coins. Neither the commemorative coin inventory nor the premium component of our inventory is hedged. (See Note 6.)

Leased Right of Use Assets

We lease warehouse space, office facilities, and equipment. Our operating leases with terms longer than twelve months are recorded at the sum of the present value of the lease's fixed minimum payments as operating lease right of use assets ("ROU assets") in the Company’s condensed consolidated balance sheets. Lease terms include all periods covered by renewal and termination options where the Company is reasonably certain to exercise the renewal options or not to exercise the termination options. Our finance leases (previously considered by the Company as capital leases prior to our adoption of ASC 842) are another type of ROU asset but are classified in the Company’s condensed consolidated balance sheets as a component of property, plant, and equipment at the present value of the lease payments.

The ROU assets also include any initial direct costs incurred and lease payments made at or before the commencement date and are reduced by lease incentives. We use our incremental borrowing rate as the discount rate to determine the present value of the lease payments for leases, as our leases do not have readily determinable implicit discount rates. Our incremental borrowing rate is the rate of interest that we would incur to borrow on a collateralized basis over a similar term and amount in a similar economic environment

11

Operating lease cost is recognized on a straight-line basis over the lease term. Finance lease cost is recognized as a combination of the amortization expense for the ROU assets and interest expense for the outstanding lease liabilities using the discount rate discussed above. The depreciable life of ROU assets is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Our lease agreements do not contain any significant residual value guarantees or material restrictive covenants. Components of operating lease expense for the three months ended September 30, 2021 and 2020 were as follows:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

September 30,

2021

 

 

 

September 30,

2020

 

Operating lease costs

 

$

449

 

 

 

$

349

 

Variable lease costs

 

 

115

 

 

 

 

98

 

Short term lease costs

 

 

22

 

 

 

 

27

 

Finance lease costs

 

 

5

 

 

 

 

5

 

Total lease costs, net

 

$

591

 

 

 

$

479

 

 

For the three months ended September 30, 2021, we made cash payments of $0.5 million for operating lease obligations. These payments are included in operating cash flows.  At September 30, 2021, the weighted-average remaining lease term under our capitalized operating leases was 6.0 years, while the weighted-average discount rate for our operating leases was approximately 4.9%.

The following represents our future undiscounted cash flows for each of the next five years and thereafter and reconciliation to the lease liabilities, as of September 30, 2021:

 

Years ending June 30,

 

Operating

Leases

 

 

2022 (9 months remaining)

 

 

1,315

 

 

2023

 

 

1,646

 

 

2024

 

 

1,692

 

 

2025

 

 

1,669

 

 

2026

 

 

1,244

 

 

Thereafter

 

 

2,102

 

 

Total lease payments

 

 

9,668

 

 

Imputed interest

 

 

(1,357

)

 

 

 

$

8,311

 

(1)

Operating lease liability - current

 

$

1,353

 

(2)

Operating lease liability - long-term

 

 

6,958

 

(3)

 

 

$

8,311

 

(1)

 

(1)

Represents the present value of the capitalized operating lease liabilities as of September 30, 2021.

(2)

Current operating lease liabilities are presented within accrued liabilities on our condensed consolidated balance sheets.

(3)

Long-term operating lease liabilities are presented within other liabilities on our condensed consolidated balance sheets.

 

 

The Company has no related party leases. We do not have leases that have not yet commenced, which would create significant rights and obligations for us, including any involvement with the construction or design of the underlying asset.

Property, Plant, and Equipment

Property, plant, and equipment is stated at cost less accumulated depreciation and amortization.  Depreciation and amortization are calculated using a straight-line method based on the estimated useful lives of the related assets, ranging from three years to twenty-five years. Depreciation and amortization commence when the related assets are placed into service. Internal-use software development costs are capitalized during the application development stage. Internal-use software costs incurred during the preliminary project stage are expensed as incurred. Land is recorded at historical cost and is not depreciated. Repair and maintenance costs are expensed as incurred. We have no major planned maintenance activities related to our plant assets associated with our minting operations

The Company reviews the carrying value of these assets for impairment whenever events and circumstances indicate that the carrying value of the asset may not be recoverable.  In evaluating for impairment, the carrying value of each asset or group of assets is compared to the undiscounted estimated future cash flows expected to result from its use and eventual disposition. An impairment loss is recognized for the difference when the carrying value exceeds the discounted estimated future cash flows. The factors considered by the Company in performing this assessment include current and projected operating results, trends and prospects, the manner in which these assets are used, and the effects of obsolescence, demand and competition, as well as other economic factors.

12

Finite-lived Intangible Assets

Finite-lived intangible assets consist primarily of customer relationships, non-compete agreements, and employment contracts. Existing customer relationships intangible assets are amortized in a manner reflecting the pattern in which the economic benefits of the assets are consumed.  All other intangible assets subject to amortization are amortized using the straight-line method over their useful lives, which are estimated to be one year to fifteen years. We review our finite-lived intangible assets for impairment under the same policy described above for property, plant, and equipment; that is, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Goodwill and Indefinite-lived Intangible Assets

Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. Goodwill and other indefinite-lived intangibles (such as trade names and trademarks) are not subject to amortization but are evaluated for impairment at least annually.  However, for tax purposes, goodwill acquired in connection with a taxable asset acquisition is generally deductible.

The Company evaluates its goodwill and other indefinite-lived intangibles for impairment in the fourth quarter of the fiscal year (or more frequently if indicators of potential impairment exist) in accordance with the Intangibles - Goodwill and Other Topic 350 of the ASC.  Goodwill is reviewed for impairment at a reporting unit level, which for the Company, corresponds to the Company’s reportable operating segments.

Evaluation of goodwill for impairment

The Company has the option to first qualitatively assess whether relevant events and circumstances make it more likely than not that the fair value of the reporting unit's goodwill is less than its carrying value. A qualitative assessment includes analyzing current economic indicators associated with a particular reporting unit such as changes in economic, market and industry conditions, business strategy, cost factors, and financial performance, among others, to determine if there would be a significant decline to the fair value of a particular reporting unit.  If the qualitative assessment indicates a stable or improved fair value, no further testing is required.

If, based on this qualitative assessment, management concludes that goodwill is more likely than not to be impaired, or elects not to perform the qualitative assessment, then it is required to perform a quantitative analysis to determine the fair value of the business, and compare the calculated fair value of the reporting unit with its carrying amount, including goodwill. If through this quantitative analysis the Company determines the fair value of a reporting unit exceeds its carrying amount, the goodwill of the reporting unit is considered not to be impaired. If the Company concludes that the fair value of the reporting unit is less than its carrying value, a goodwill impairment loss will be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. (See Note 8.)

Evaluation of indefinite-lived intangible assets for impairment

The Company evaluates its indefinite-lived intangible assets (i.e., trade names and trademarks) for impairment. In assessing its indefinite-lived intangible assets for impairment, the Company has the option to first perform a qualitative assessment to determine whether events or circumstances exist that lead to a determination that it is unlikely that the fair value of the indefinite-lived intangible asset is less than its carrying amount. If the Company determines that it is unlikely that the fair value of an indefinite-lived intangible asset is less than its carrying amount, the Company is not required to perform any additional tests in assessing the asset for impairment. However, if the Company concludes otherwise or elects not to perform the qualitative assessment, then it is required to perform a quantitative analysis to determine if the fair value of an indefinite-lived intangible asset is less than its carrying value. If through this quantitative analysis the Company determines the fair value of an indefinite-lived intangible asset exceeds its carrying amount, the indefinite-lived intangible asset is considered not to be impaired. If the Company concludes that the fair value of an indefinite-lived intangible asset is less than its carrying value, an impairment loss will be recognized for the amount by which the carrying amount exceeds the indefinite-lived intangible asset’s fair value.

The methods used to estimate the fair value measurements of the Company’s reporting units and indefinite-lived intangible assets include those based on the income approach (including the discounted cash flow and relief-from-royalty methods) and those based on the market approach (primarily the guideline transaction and guideline public company methods). (See Note 8.)

Long-Term Investments

Investments in privately-held entities are accounted for using the equity method when the Company has significant influence but not control over the investee and are accounted for using the cost method when the Company has little or no influence over the investee. Significant influence is generally deemed to exist if the Company’s ownership interest in the voting stock of the investee ranges between 20% and 50%, although other factors are considered in determining whether the equity method of accounting is appropriate. Under the equity method, the carrying value of the investment is adjusted for the Company’s proportionate share of the investee’s earnings or losses, with the corresponding share of earnings or losses reported in other income, net. The carrying value of the investment is reduced

13

by the amount of the dividends received from the equity-method investee, as they are considered a return of capital. Under the cost method of accounting, the investment is measured at cost, adjusted for observable price changes and impairments, with changes recognized in net income.

We evaluate our long-term investments for impairment quarterly or whenever events or changes in circumstances indicate that a decline in the fair value of these assets is determined to be other-than-temporary. Additionally, the Company performs an on-going evaluation of its investments with which the Company has variable interests to determine if any of these entities are VIEs that are required to be consolidated.  None of the Company’s long-term investments are reportable VIEs as of September 30, 2021 and June 30, 2021.

Other Long-Term Assets

Notes and other receivables, with terms greater than one year, are carried at amortized cost, net of any unamortized origination fees, which are recognized over the life of the note.  The determination of an allowance is based on historical experience and, as a result, can differ from actual losses incurred in the future. We charge off receivables at such time as it is determined collection will not occur.

 

Noncontrolling interest

 

The Company’s condensed consolidated financial statements include entities in which the Company has a controlling financial interest. Noncontrolling interest is the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. Such noncontrolling interest is reported on the condensed consolidated balance sheets within equity, separately from the Company’s equity. On the condensed consolidated statements of income, revenues, expenses and net income or loss from the less-than-wholly owned subsidiary are reported at their consolidated amounts, including both the amounts attributable to the Company and the noncontrolling interest. Income or loss is allocated to the noncontrolling interest based on its weighted average ownership percentage for the applicable period. The condensed consolidated statements of equity include beginning balances, activity for the period and ending balances for each component of stockholders’ equity, noncontrolling interest and total equity.

 

Revenue Recognition

Settlement Date Accounting

Substantially all of the Company’s sales of precious metals are conducted using sales contracts that meet the definition of derivative instruments in accordance with the Derivatives and Hedging Topic 815 of the ASC ("ASC 815").  The contract underlying A-Mark’s commitment to deliver precious metals is referred to as a “fixed-price forward commodity contract” because the price of the commodity is fixed at the time the order is placed.  Revenue is recognized on the settlement date, which is defined as the date on which: (i) the quantity, price, and specific items being purchased have been established, (ii) metals have been delivered to the customer, and (iii) payment has been received or is covered by the customer’s established credit limit with the Company.

All derivative instruments are marked-to-market during the interval between the order date and the settlement date, with the changes in the fair value charged to cost of sales.   The Company’s hedging strategy to mitigate the market risk associated with its sales commitments is described separately below under the caption “Hedging Activities.”

Types of Orders that are Physically Delivered

The Company’s contracts to sell precious metals to customers are usually settled with the physical delivery of metals to the customer, although net settlement (i.e., settlement at an amount equal to the difference between the contract value and the market price of the metal on the settlement date) is permitted.  Below is a summary of the Company’s major order types and the key factors that determine when settlement occurs and when revenue is recognized for each type:

 

•

Traditional physical orders — The quantity, specific product, and price are determined on the order date.  Payment or sufficient credit is verified prior to delivery of the metals on the settlement date.

 

•

Consignment orders — The Company delivers the items requested by the customer prior to establishing a firm order with a price.  Settlement occurs and revenue is recognized once the customer confirms its order (quantity, specific product, and price) and remits full payment for the sale.

 

•

Provisional orders — The quantity and type of metal is established at the order date, but the price is not set. The customer commits to purchasing the metals within a specified time period, usually within one year, at the then-current market price.  The Company delivers the metal to the customer after receiving the customer’s deposit, which is typically based on 110% of the prevailing current spot price.  The unpriced metal is subject to a margin call if the deposit falls below 105% of the value of the unpriced metal. The purchase price is established, and revenue is recognized at the time the customer notifies the Company that it desires to purchase the metal.

14

 

•

Margin orders — The quantity, specific product, and price are determined at the order date; however, the customer is allowed to finance the transaction through the Company and to defer delivery by committing to remit a partial payment (approximately 20%) of the total order price. With the remittance of the partial payment, the customer locks in the purchase price for a specified time period (usually up to two years from the order date). Revenue on margin orders is recognized when the order is paid in full and delivered to the customer.

 

•

Borrowed precious metals orders for unallocated positions — Customers may purchase unallocated metal positions in the Company's inventory.  The quantity and type of metal is established at the order date, but the specific product is not yet determined.  Revenue is not recognized until the customer selects the specific precious metal product it wishes to purchase, full payment is received, and the product is delivered to the customer.

In general, unshipped orders for which a customer advance has been received by the Company are classified as advances from customers. Orders that have been paid for and shipped, but not yet delivered to the customer are classified as deferred revenue.  Both customer advances and deferred revenue are components of accounts payable and other current liabilities in the condensed consolidated balance sheets.

Hedging Activities

The value of our inventory and our purchase and sale commitments are linked to the prevailing price of the underlying precious metal commodity.  The Company seeks to minimize the effect of price changes of the underlying commodity and enters into inventory hedging transactions, principally utilizing metals commodity futures contracts traded on national futures exchanges or forward contracts with credit worthy financial institutions.  The Company hedges by each commodity type (gold, silver, platinum, and palladium). All of our commodity derivative contracts are under master netting arrangements and include both asset and liability positions.

Commodity forward, and futures contracts entered into for hedging purposes are recorded at fair value on the trade date and are marked-to-market each period. The difference between the original contract values and the market values of these contracts are reflected as derivative assets or derivative liabilities in the condensed consolidated balance sheets at fair value, with the corresponding unrealized gains or losses included as a component of cost of sales. When these contracts are net settled, the unrealized gains and losses are reversed and the realized gains and losses for forward contracts are recorded in revenue and cost of sales and the net realized gains and losses for futures and option contracts are recorded in cost of sales.

The Company enters into futures and forward contracts solely for the purpose of hedging our inventory holding risk and our liability on price protection programs, and not for speculative market purposes. The Company’s gains (losses) on derivative instruments are substantially offset by the changes in the fair market value of the underlying precious metals inventory, which is also recorded in cost of sales in the condensed consolidated statements of income. (See Note 11.)

Other Sources of Revenue

The Company recognizes its storage, logistics, licensing, and other services revenues in accordance with the FASB's release ASU 2014-09  Revenue From Contracts With Customers Topic 606 and subsequent related amendments ("ASC 606"),  which follows five basic  steps to determine whether revenue can be recognized: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

The Company recognizes revenue when or as it satisfies its obligation by transferring control of the good or service to the customer. This is either satisfied over time or at a point in time. A performance obligation is satisfied over time if one of the following criteria are met: (i) the customer simultaneously receives and consumes the benefits as the Company performs, (ii) the Company's performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (iii) the Company's performance does not create an asset with an alternative use to the Company, and the Company has an enforceable right for payment of performance completed-to-date.  When none of those is met, a performance obligation is satisfied at a point-in-time.

The Company recognizes storage revenue as the customer simultaneously receives and consumes the storage services (e.g., fixed storage fees based on the passage of time).  The Company recognizes logistics (i.e., fulfillment) revenue when the customer receives the benefit of the services.  The Company recognizes advertising and consulting revenues when the service is performed, and the benefit of the service is received by the customer.  In aggregate, these types of service revenues account for less than 1% of the Company's consolidated revenues.

15

Interest Income

In accordance with the Interest Topic 835 of the ASC ("ASC 835"), the following are interest income generating activities of the Company:

 

•

Secured Loans —  The Company uses the effective interest method to recognize interest income on its secured loans transactions.  The Company maintains a security interest in the precious metals and records interest income over the terms of the secured loan receivable. Recognition of interest income is suspended, and the loan is placed on non-accrual status when management determines that collection of future interest income is not probable. The interest income accrual is resumed, and previously suspended interest income is recognized, when the loan becomes contractually current and/or collection doubts are resolved. Cash receipts on impaired loans are recorded first against the principal and then to any unrecognized interest income. (See Note 5.)

 

•

Margin accounts —  The Company earns a fee (interest income) under financing arrangements related to margin orders over the period during which customers have opted to defer making full payment on the purchase of metals.

 

•

Repurchase agreements —  Repurchase agreements represent a form of secured financing whereby the Company sets aside specific metals for a customer and charges a fee on the outstanding value of these metals.  The customer is granted the option (but not the obligation) to repurchase these metals at any time during the open reacquisition period.  This fee is earned over the duration of the open reacquisition period and is classified as interest income.

 

•

Spot deferred orders Spot deferred orders are a special type of forward delivery order that enable customers to purchase or sell certain precious metals from/to the Company at an agreed upon price but, are allowed to delay remitting or taking delivery up to a maximum of two years from the date of order.  Even though the contract allows for physical delivery, it rarely occurs for this type of order.  As a result, revenue is not recorded from these transactions.  Spot deferred orders are considered a type of financing transaction, where the Company earns a fee (interest income) under spot deferred arrangements over the period in which the order is open.

Interest Expense

The Company accounts for interest expense on the following arrangements in accordance with Interest Topic 835 of the ASC ("ASC 835"):

 

•

Borrowings —  The Company incurs interest expense from its lines of credit, its debt obligations, and notes payable using the effective interest method. (See Note 14.)  Additionally, the Company amortizes capitalized loan costs to interest expense over the period of the loan agreement.

 

•

Loan servicing fees —  When the Company purchases loan portfolios, the Company may have the seller service the loans that were purchased.  The Company incurs a fee based on total interest charged to borrowers over the period the loans are outstanding.  The servicing fee incurred by the Company is charged to interest expense.

 

•

Product financing arrangements —  The Company incurs financing fees (classified as interest expense) from its product financing arrangements (also referred to as reverse-repurchase arrangements) with third party finance companies for the transfer and subsequent option to reacquire its precious metal inventory at a later date.  These arrangements are accounted for as secured borrowings. During the term of this type of agreement, the third party charges a monthly fee as a percentage of the market value of the designated inventory, which the Company intends to reacquire in the future.  No revenue is generated from these arrangements.  The Company enters this type of transaction for additional liquidity.

 

•

Borrowed and leased metals fees —  The Company may incur financing costs from its borrowed metal arrangements. The Company borrows precious metals (usually in the form of pool metals) from its suppliers and customers under short-term arrangements using other precious metals as collateral. Typically, during the term of these arrangements, the third party charges a monthly fee as a percentage of the market value of the metals borrowed (determined at the spot price) plus certain processing and other fees.

Leased metal transactions are a similar type of transaction, except the Company is not required to pledge other precious metal as collateral for the precious metal received. The fees charged by the third party are based on the spot value of the pool metal received.

Both borrowed and leased metal transactions provide an additional source of liquidity, as the Company usually monetizes the metals received under such arrangements.  Repayment is usually in the same form as the metals advanced but may be settled in cash.

16

Earnings from Equity Method Investments

The Company's proportional interest in the reported earnings from equity method investments is shown on the condensed consolidated statements of income as earnings from equity method investments.  Prior to the fourth quarter of fiscal 2021, the Company presented earnings from equity method investments as a component of other income (loss), net in the statements of income. Such reclassification had no impact on current or prior years’ net income, total assets, total liabilities, stockholders’ equity or cash flows.

Other Income and Expense, Net

The Company's other income and expense is royalty income.

Advertising

 

Advertising and marketing costs consist primarily of internet advertising, online marketing, direct mail, print media, and television commercials and are expensed when incurred.  Advertising costs totaled $2.8 million and $0.7 million for the three months ended September 30, 2021 and 2020.  Costs associated with the marketing and promotion of the Company's products are included within selling, general, and administrative expenses.  Advertising costs associated with the operation of our SilverPrice.org and GoldPrice.org websites, which provide price information on silver, gold, and cryptocurrencies, are not included within selling, general, and administrative expenses, but are included in cost of sales in the condensed consolidated statements of income.

Shipping and Handling Costs

Shipping and handling costs represent costs associated with shipping product to customers and receiving product from vendors and are included in cost of sales in the condensed consolidated statements of income.  Shipping and handling costs incurred totaled $5.2 million and $3.2 million, respectively, for the three months ended September 30, 2021 and 2020.

Share-Based Compensation

The Company accounts for equity awards under the provisions of the Compensation - Stock Compensation Topic 718 of the ASC ("ASC 718"), which establishes fair value-based accounting requirements for share-based compensation to employees. ASC 718 requires the Company to recognize the grant-date fair value of stock options and other equity-based compensation issued to employees as expense over the service period in the Company's condensed consolidated financial statements.  The expense is adjusted for actual forfeitures of unvested awards as they occur.  (See Note 16.)

Income Taxes

As part of the process of preparing its condensed consolidated financial statements, the Company is required to estimate its provision for income taxes in each of the tax jurisdictions in which it conducts business, in accordance with the Income Taxes Topic 740 of the ASC ("ASC 740"). The Company computes its annual tax rate based on the statutory tax rates and tax planning opportunities available to it in the various jurisdictions in which it earns income. Significant judgment is required in determining the Company's annual tax rate and in evaluating uncertainty in its tax positions. The Company has adopted the provisions of ASC 740-10, which clarifies the accounting for uncertain tax positions. ASC 740-10 requires that the Company recognizes the impact of a tax position in the financial statements if the position is not more likely than not to be sustained upon examination based on the technical merits of the position. The Company recognizes interest and penalties related to certain uncertain tax positions as a component of income tax expense and the accrued interest and penalties are included in deferred and income taxes payable in the Company’s condensed consolidated balance sheets. See Note 12 for more information on the Company’s accounting for income taxes.

Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion or all of the net deferred tax assets will not be realized. The factors used to assess the likelihood of realization include the Company's forecast of the reversal of temporary differences, future taxable income, and available tax planning strategies that could be implemented to realize the net deferred tax assets. Failure to achieve forecasted taxable income in applicable tax jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in the Company's effective tax rate on future earnings. Based on our assessment, it appears more likely than not that all of the net deferred tax assets will be realized through future taxable income.

17

Earnings per Share ("EPS")

The Company computes and reports both basic EPS and diluted EPS. Basic EPS is computed by dividing net earnings by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net earnings by the sum of the weighted average number of common shares and dilutive common stock equivalents outstanding during the period. Diluted EPS reflects the total potential dilution that could occur from outstanding equity awards, including unexercised stock options, utilizing the treasury stock method.

A reconciliation of shares used in calculating basic and diluted earnings per common share for the three months ended September 30, 2021 and 2020, is presented below.

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

September 30,

2021

 

 

 

September 30,

2020

 

Basic weighted average shares outstanding

 

 

11,263

 

 

 

 

7,035

 

Effect of common stock equivalents — stock issuable

   under outstanding equity awards

 

 

746

 

 

 

 

440

 

Diluted weighted average shares outstanding

 

 

12,009

 

 

 

 

7,475

 

 

Actual common shares outstanding totaled 11,351,897 and 7,066,530 as of September 30, 2021 and September 30, 2020.

Dividends

Dividends are recorded if and when they are declared by the Board of Directors (see Note 16).

Recently Adopted Accounting Pronouncements and Auditing Standards

From time to time, the Financial Accounting Standards Board ("FASB") or other standards setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification (“ASC”) are communicated through issuance of an Accounting Standards Update (“ASU”).

In December 2019, the FASB issued ASU 2019-12 (“ASU 2019-12”), Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes to simplify the accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The Company adopted this ASU in the first quarter of the 2022 fiscal year. The adoption of ASU 2019-12 did not have a material impact on the Company’s consolidated financial statements and disclosures.

Recent Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04 (“ASU 2020-04”), Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as interbank offered rates and LIBOR. This guidance includes practical expedients for contract modifications due to reference rate reform. Generally, contract modifications related to reference rate reform may be considered an event that does not require remeasurement or reassessment of a previous accounting determination at the modification date. This guidance is effective immediately; however, it is only available through December 31, 2022. The Company will continue to evaluate the standard as well as additional changes, modifications, or interpretations which may impact the Company.

In June 2016, the FASB issued ASU No. 2016-13, (“ASU 2016-13”), Financial Instruments - Credit Loss (Topic 326), which updates the guidance on recognition and measurement of credit losses for financial assets. The new requirements, known as the current expected credit loss model ("CECL") will require entities to adopt an impairment model based on expected losses rather than incurred losses. This update is effective for the Company on July 1, 2023 (for fiscal years beginning after December 15, 2022 including interim periods within those fiscal years).  The Company does not have a history of credit loan losses.  The adoption of this guidance will not have a material impact on the Company’s financial statements or our internal controls over financial reporting.  

 

18

 

3. ASSETS AND LIABILITIES, AT FAIR VALUE

Fair Value of Financial Instruments

A financial instrument is defined as cash, evidence of an ownership interest in an entity, or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from a second entity. The fair value of financial instruments represents amounts that would be received upon the sale of those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. Those fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Company’s own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Company based on the best information available in the circumstances, including expected cash flows and appropriately risk adjusted discount rates, and available observable and unobservable inputs.

For most of the Company's financial instruments, the carrying amount approximates fair value. The carrying amounts of cash, receivables, secured loans receivable, accounts payable and other current liabilities, accrued liabilities, and income taxes payable approximate fair value due to their short-term nature. The carrying amounts of derivative assets and derivative liabilities, liabilities on borrowed metals and product financing arrangements are marked-to-market on a daily basis to fair value. The carrying amounts of lines of credit approximate fair value based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities.

The Company’s fixed-rate notes payable is reported at its aggregate principal amount less unamortized original issue discount and deferred financing costs on the accompanying condensed consolidated balance sheets. The fair value of the notes payable is based on the present value of the expected coupon and principal payments using an estimated discount rate based on current market rates for debt with similar credit risk.  The following table presents the carrying amounts and estimated fair values of the Company’s fixed-rate notes payable of September 30, 2021 and June 30, 2021:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2021

 

 

June 30, 2021

 

 

 

Carrying

Amount

 

 

Fair value

 

 

Carrying

Amount

 

 

Fair value

 

Notes payable

 

$

93,446

 

 

$

100,149

 

 

$

93,249

 

 

$

100,724

 

 

Valuation Hierarchy

In determining the fair value of its financial instruments, the Company employs a fair value hierarchy that prioritizes the inputs for the valuation techniques used to measure fair value. Topic 820 of the ASC established a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

 

•

Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

•

Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

•

Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The significant assumptions used to determine the carrying value and the related fair value of the assets and liabilities measured at fair value on a recurring basis are described below:

Inventories.  The Company's inventory, which consists primarily of bullion and bullion coins, is acquired and initially recorded at cost and then marked to fair market value.  The fair market value of the bullion and bullion coins comprises two components: i) published market values attributable to the cost of the raw precious metal, and ii) the premium paid at acquisition of the metal, which is attributable to the incremental value of the product in its finished goods form.  The market value attributable solely to such premium is readily determinable by reference to multiple reputable published sources. Except for commemorative coin inventory, which are included in inventory at the lower of cost or net realizable value, the Company’s inventory is subsequently recorded at their fair market values on a daily basis.  The fair value for commodities inventory (i.e., inventory excluding commemorative coins) is determined using pricing data derived from the markets on which the underlying commodities are traded. Precious metals commodities inventory is classified in Level 1 of the valuation hierarchy.

Precious Metals held under Financing Arrangements.  The Company enters into arrangements with certain customers under which A-Mark purchases precious metals from the customers which are subject to repurchase by the customer at the spot value of the product

19

on the repurchase date.  The precious metals purchased under these arrangements consist of rare and unique items, and therefore the Company accounts for these transactions as precious metals held under financing arrangements, which generate financing income rather than revenue earned from precious metals inventory sales. In these repurchase arrangements, the Company holds legal title to the metals and earns financing income for the duration of the agreement. The fair value for precious metals held under financing arrangements, (a commodity, like inventory above) is determined using pricing data derived from the markets on which the underlying commodities are traded. Precious metals held under financing arrangements are classified in Level 1 of the valuation hierarchy.

Derivatives.  Futures contracts, forward contracts, option contracts, and open sale and purchase commitments are valued at their fair values, based on the difference between the quoted market price and the contractual price (i.e., intrinsic value,) and are included within Level 1 of the valuation hierarchy.

Margin and Borrowed Metals Liabilities. Margin and borrowed metals liabilities consist of the Company's commodity obligations to margin customers and suppliers, respectively. Margin liabilities and borrowed metals liabilities are carried at fair value, which is determined using quoted market pricing and data derived from the markets on which the underlying commodities are traded. Margin and borrowed metals liabilities are classified in Level 1 of the valuation hierarchy.

Product Financing Arrangements. Product financing arrangements consist of financing agreements for the transfer and subsequent re-acquisition of the sale of gold and silver at an agreed-upon price based on the spot price with a third party. Such transactions allow the Company to repurchase this inventory on the termination (repurchase) date. The third party charges monthly interest as a percentage of the market value of the outstanding obligation, which is carried at fair value. The obligation is stated at the amount required to repurchase the outstanding inventory. Fair value is determined using quoted market pricing and data derived from the markets on which the underlying commodities are traded. Product financing arrangements are classified in Level 1 of the valuation hierarchy.

The following tables present information about the Company's assets and liabilities measured at fair value on a recurring basis as of September 30, 2021 and June 30, 2021, aggregated by each fair value hierarchy level:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2021

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Price in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active Markets

 

 

Significant Other

 

 

Significant

 

 

 

 

 

 

 

for Identical

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

 

Instruments

 

 

Inputs

 

 

Inputs

 

 

 

 

 

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventories(1)

 

$

564,996

 

 

$

—

 

 

$

—

 

 

$

564,996

 

Precious metals held under financing arrangements

 

 

130,618

 

 

 

—

 

 

 

—

 

 

 

130,618

 

Derivative assets — open sale and purchase commitments, net

 

 

15,212

 

 

 

—

 

 

 

—

 

 

 

15,212

 

Derivative assets — futures contracts

 

 

23,289

 

 

 

—

 

 

 

—

 

 

 

23,289

 

Derivative assets — forward contracts

 

 

31,284

 

 

 

—

 

 

 

—

 

 

 

31,284

 

Total assets, valued at fair value

 

$

765,399

 

 

$

—

 

 

$

—

 

 

$

765,399

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities on borrowed metals

 

$

74,618

 

 

$

—

 

 

$

—

 

 

$

74,618

 

Product financing arrangements

 

 

219,420

 

 

 

—

 

 

 

—

 

 

 

219,420

 

Derivative liabilities — open sale and purchase commitments, net

 

 

67,935

 

 

 

—

 

 

 

—

 

 

 

67,935

 

Derivative liabilities — margin accounts

 

 

2,162

 

 

 

—

 

 

 

—

 

 

 

2,162

 

Derivative liabilities — futures contracts

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Derivative liabilities — forward contracts

 

 

251

 

 

 

—

 

 

 

—

 

 

 

251

 

Total liabilities, valued at fair value

 

$

364,386

 

 

$

—

 

 

$

—

 

 

$

364,386

 

 

(1)

Commemorative coin inventory totaling $709 thousand is held at lower of cost or realizable value, and thus is excluded from the inventories balance shown in this table.

20

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2021

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Price in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active Markets

 

 

Significant Other

 

 

Significant

 

 

 

 

 

 

 

for Identical

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

 

Instruments

 

 

Inputs

 

 

Inputs

 

 

 

 

 

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventories(1)

 

$

457,613

 

 

$

—

 

 

$

—

 

 

$

457,613

 

Precious metals held under financing arrangements

 

 

154,742

 

 

 

—

 

 

 

—

 

 

 

154,742

 

Derivative assets — open sale and purchase commitments, net

 

 

38,340

 

 

 

—

 

 

 

—

 

 

 

38,340

 

Derivative assets — futures contracts

 

 

4,510

 

 

 

—

 

 

 

—

 

 

 

4,510

 

Derivative assets — forward contracts

 

 

1,686

 

 

 

—

 

 

 

—

 

 

 

1,686

 

Total assets, valued at fair value

 

$

656,891

 

 

$

—

 

 

$

—

 

 

$

656,891

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities on borrowed metals

 

$

91,866

 

 

$

—

 

 

$

—

 

 

$

91,866

 

Product financing arrangements

 

 

201,028

 

 

 

—

 

 

 

—

 

 

 

201,028

 

Derivative liabilities — open sale and purchase commitments, net

 

 

243

 

 

 

—

 

 

 

—

 

 

 

243

 

Derivative liabilities — margin accounts

 

 

2,806

 

 

 

—

 

 

 

—

 

 

 

2,806

 

Derivative liabilities — futures contracts

 

 

465

 

 

 

—

 

 

 

—

 

 

 

465

 

Derivative liabilities — forward contracts

 

 

4,025

 

 

 

—

 

 

 

—

 

 

 

4,025

 

Total liabilities, valued at fair value

 

$

300,433

 

 

$

—

 

 

$

—

 

 

$

300,433

 

 

(1)

Commemorative coin inventory totaling $406 thousand is held at lower of cost or net realizable value, and thus is excluded from the inventories balance shown in this table.

There were no transfers in or out of Level 2 or 3 from other levels within the fair value hierarchy during the reported periods.

Assets Measured at Fair Value on a Non-Recurring Basis

Certain assets are measured at fair value on a nonrecurring basis. These assets are not measured at fair value on an on-going basis but are subject to fair value adjustments only under certain circumstances. These include (i) investments in private companies when there are identifiable events or changes in circumstances that may have a significant adverse impact on the fair value of these assets, (ii) equity method investments that are remeasured to the acquisition-date fair value upon the Company obtaining a controlling interest in the investee during a step acquisition, (iii) property, plant, and equipment and definite-lived intangibles, (iv) goodwill, or (v) indefinite-lived intangibles, all of which are written down to fair value when they are held for sale or determined to be impaired.

Non-recurring valuations use significant unobservable inputs and significant judgments and therefore fall under Level 3 of the fair value hierarchy.  The valuation inputs include assumptions on the appropriate discount rates, long-term growth rates, relevant comparable company earnings multiples, and the amount and timing of expected future cash flows. The cash flows employed in the analyses are based on the Company’s estimated outlook and various growth rates. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective equity method investment, asset group, or reporting unit. In assessing the reasonableness of its determined fair values, the Company evaluates its results against other value indicators, such as comparable transactions and comparable public company trading values.

The Company used a third-party independent valuation specialist to assist us to determine the fair value of the net assets acquired in connection with Company’s step acquisition of JMB. (Refer to Note 1 in our 2021 Annual Report.)

4. RECEIVABLES

Receivables consist of the following as of September 30, 2021 and June 30, 2021:

 

in thousands

 

 

 

 

 

 

 

 

 

 

September 30,

2021

 

 

June 30,

2021

 

Customer trade receivables

 

$

84,615

 

 

$

12,197

 

Wholesale trade advances

 

 

17,047

 

 

 

26,959

 

Due from brokers

 

 

2,860

 

 

 

49,844

 

 

 

$

104,522

 

 

$

89,000

 

 

21

 

Customer Trade Receivables. Customer trade receivables represent short-term, non-interest bearing amounts due from precious metal sales, advances related to financing products, and other secured interests in assets of the customer.

Wholesale Trade Advances. Wholesale trade advances represent advances of various bullion products and cash advances for purchase commitments of precious metal inventory. Typically, these advances are unsecured, short-term, and non-interest bearing, and are made to wholesale metals dealers and government mints.

Due from Brokers. Due from brokers principally consists of the margin requirements held at brokers related to open futures contracts. (See Note 11.)

 

5. SECURED LOANS RECEIVABLE

Below is a summary of the carrying value of our secured loans as of September 30, 2021 and June 30, 2021:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

September 30,

2021

 

 

June 30,

2021

 

 

Secured loans originated

 

$

32,392

 

 

$

36,080

 

 

Secured loans originated - with a related party

 

 

10

 

 

 

3,042

 

 

 

 

 

32,402

 

 

 

39,122

 

 

Secured loans acquired

 

 

77,921

 

(1)

 

73,846

 

(2)

 

 

$

110,323

 

 

$

112,968

 

 

 

(1)

Includes $4 thousand of loan premium as of September 30, 2021

(2)

Includes $5 thousand of loan premium as of June 30, 2021.

Secured Loans - Originated: Secured loans include short-term loans, which include a combination of on-demand lines and short-term facilities. These loans are fully secured by the customers' assets, which predominantly include bullion and numismatic and semi-numismatic material, and which are typically held in safekeeping by the Company.  (See Note 13 for further information regarding our secured loans made to related parties.)

Secured Loans - Acquired: Secured loans also include short-term loans, which include a combination of on-demand lines and short term facilities that are purchased from our customers.  The Company acquires a portfolio of their loan receivables at a price that approximates the outstanding balance of each loan in the portfolio, as determined on the effective transaction date.  Each loan in the portfolio is fully secured by the borrowers' assets, which include bullion and numismatic and semi-numismatic material, and which are typically held in safekeeping by the Company. The seller of the loan portfolio generally retains the responsibility for the servicing and administration of the loans.

As of September 30, 2021 and June 30, 2021, our secured loans carried weighted-average effective interest rates of 9.0% and 8.9%, respectively, and mature in periods ranging typically from on-demand to one year.

The secured loans that the Company generates with active customers of A-Mark are reflected as an operating activity on the condensed consolidated statements of cash flows. The secured loans that the Company generates with borrowers that are not active customers of A-Mark are reflected as an investing activity on the condensed consolidated statements of cash flows as secured loans receivables, net. For the secured loans that (i) are reflected as an investing activity and have terms that allow the borrowers to increase their loan balance (at the discretion of the Company) based on the excess value of their collateral compared to their aggregate principal balance of loan, and (ii) are repayable on demand or in the short-term, the borrowings and repayments are netted on the condensed consolidated statements of cash flows.

Credit Quality of Secured Loans Receivables and Allowance for Credit Losses

General

The Company's secured loan receivables portfolio comprises loans with similar credit risk profiles, which enables the Company to apply a standard methodology to determine the credit quality for each loan and the allowance for credit losses, if any.

The credit quality of each loan is generally determined by the collateral value assessment, loan-to-value (“LTV”) ratio (that is, the principal amount of the loan divided by the estimated value of the collateral) and the type (or class) of secured material.  All loans are fully secured by precious metal bullion, numismatic and semi-numismatic collateral, or graded sports memorabilia, which remains in the physical custody of the Company for the duration of the loan.  The term of the loans is generally 180 days, however loans are typically renewed prior to maturity and therefore remain outstanding for a longer period of time.  Interest earned on a loan is billed monthly and is typically due and payable within 20 days and, if not paid after all applicable grace periods, is added to the outstanding principal balance, and late fees and default interest rates are assessed.

22

When an account is in default or if a margin call has not been met on a timely basis, the Company has the right to liquidate the borrower's collateral in order to satisfy the unpaid balance of the outstanding loans, including accrued and unpaid interest.

Class and Credit Quality of Loans

 

The three classes of secured loan receivables are defined by collateral type: (i) bullion items, (ii) numismatic and semi-numismatic coins and (iii) graded sports memorabilia.  The Company required LTV ratio varies with the class of loans. Typically, the Company requires a LTV ratio of approximately 75% for bullion and graded sports memorabilia, and 65% for numismatic and semi-numismatic collateral.  The reason for the lower LTV ratio for numismatic loans is that, on a percentage basis, more of the value of the numismatic coin relates to its premium value rather than its underlying commodity value.

The Company's secured loans by portfolio class, which align with internal management reporting, are as follows:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2021

 

 

 

June 30, 2021

 

Bullion

 

$

91,586

 

 

 

83.0

%

 

 

$

88,332

 

 

 

78.2

%

Numismatic and semi-numismatic

 

 

18,520

 

 

 

16.8

%

 

 

 

24,636

 

 

 

21.8

%

Graded sports memorabilia

 

 

217

 

 

 

0.2

%

 

 

 

—

 

 

 

0.0

%

 

 

$

110,323

 

 

 

100.0

%

 

 

$

112,968

 

 

 

100.0

%

 

Due to the nature of market fluctuations of precious metal commodity prices, the Company monitors the bullion collateral value of each loan on a daily basis, based on spot price of precious metals.  Numismatic collateral values are updated by numismatic specialists when loan terms are renewed (typically in 180 days).

Generally, we initiate the margin call process when the outstanding loan balance is in excess of 85% of the current value of the underlying collateral.  In the event that a borrower fails to meet a margin call to reestablish the required LTV ratio, the loan is considered in default.  The collateral material (either bullion, numismatic or graded sports memorabilia) underlying such loans is then sold by the Company to satisfy all amounts due under the loan.

Loans with LTV ratios of less than 75% are generally considered to be higher quality loans. Below is summary of aggregate outstanding secured loan balances bifurcated into (i) loans with a LTV ratio of less than 75% and (ii) loans with a LTV ratio of 75% or more:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2021

 

 

 

June 30, 2021

 

Loan-to-value of less than 75%

 

$

36,548

 

 

 

33.1

%

 

 

$

96,602

 

 

 

85.5

%

Loan-to-value of 75% or more

 

 

73,775

 

 

 

66.9

%

(1)

 

 

16,366

 

 

 

14.5

%

 

 

$

110,323

 

 

 

100.0

%

 

 

$

112,968

 

 

 

100.0

%

 

(1)

The number of loans with LTV ratios of 75% or greater decreased subsequent to September 30, 2021, as precious metal prices have increased.

 

The Company had no loans with a LTV ratio in excess of 100% as of September 30, 2021 and June 30, 2021.

Non-Performing Loans/Impaired Loans

Historically, the Company has not established an allowance for any credit losses because the Company has liquidated the collateral to satisfy the amount due before any loan becomes non-performing or impaired.

Non-performing loans have the highest probability for credit loss. The allowance for secured loan credit losses attributable to non-performing loans is based on the most probable source of repayment, which is normally the liquidation of collateral.  Due to the accelerated liquidation terms of the Company's loan portfolio, past due loans are generally liquidated within 90 days of default before a loan becomes non-performing.  In the event a loan was to become non-performing, the Company would determine a reserve to reduce the carrying balance to its estimated net realizable value.  As of September 30, 2021 and June 30, 2021, the Company had no allowance for secured loan losses or loans classified as non-performing.

A loan is considered impaired if it is probable, based on current information and events, that the Company will be unable to collect all amounts due according to the contractual terms of the loan. Customer loans are reviewed for impairment and include loans that are past due, non-performing, or in bankruptcy. In the event of an impairment, recognition of interest income would be suspended, and the loan would be placed on non-accrual status at the time. Accrual would be resumed, and previously suspended interest income would be recognized, when the loan becomes contractually current and/or collection doubts are removed. Cash receipts on impaired loans are recorded first against the receivable and then to any unrecognized interest income. For the three months ended September 30, 2021 and 2020, the Company incurred no loan impairment costs or loans placed on a non-accrual status.

 

23

 

6. INVENTORIES

Our inventory consists of the precious metals that the Company has physically received, and inventory held by third-parties, which, at the Company's option, it may or may not receive.  Below, our inventory is summarized by classification at September 30, 2021 and June 30, 2021:

 

in thousands

 

 

 

 

 

 

 

 

 

 

September 30,

2021

 

 

June 30,

2021

 

Inventory held for sale

 

$

204,771

 

 

$

159,319

 

Repurchase arrangements with customers

 

 

121,298

 

 

 

75,063

 

Consignment arrangements with customers

 

 

1,252

 

 

 

1,327

 

Commemorative coins, held at lower of cost or net realizable value

 

 

709

 

 

 

406

 

Borrowed precious metals

 

 

18,255

 

 

 

20,876

 

Product financing arrangements, restricted

 

 

219,420

 

 

 

201,028

 

 

 

$

565,705

 

 

$

458,019

 

 

Inventory Held for Sale.  Inventory held for sale represents precious metals, excluding commemorative coin inventory, that have been received by the Company and are not subject to repurchase by or consignment arrangements with third parties, borrowed precious metals, and product financing arrangements.  As of September 30, 2021 and June 30, 2021, the inventory held for sale totaled $204.8 million and $159.3 million, respectively.

Repurchase Arrangements with Customers.  The Company enters into arrangements with certain customers under which A-Mark purchases precious metals from the customers which are subject to repurchase by the customer at the fair value of the product on the repurchase date. Under these arrangements, the Company, which holds legal title to the metals, earns financing income until the time the arrangement is terminated, or the material is repurchased by the customer. In the event of a repurchase by the customer, the Company records a sale.

These arrangements are typically terminable by either party upon 14 days' notice.  Upon termination, the customer’s rights to repurchase any remaining inventory is forfeited. As of September 30, 2021 and June 30, 2021, included within inventories is $121.3 million and $75.1 million, respectively, of precious metals products subject to repurchase arrangements with customers.

Consignment Arrangements with Customers.  The Company periodically loans metals to customers `on a short-term consignment basis. Inventory loaned under consignment arrangements to customers as of September 30, 2021 and June 30, 2021 totaled $1.3 million and $1.3 million, respectively. Such transactions are recorded as sales and are removed from the Company's inventory at the time the customer elects to price and purchase the precious metals.

Commemorative Coins.  Our commemorative coin inventory, including its premium component, is held at the lower of cost or net realizable value, because the value of commemorative coins is influenced more by supply and demand determinants than on the underlying spot price of the precious metal content of the commemorative coins. The value of commemorative coins is not subject to the same level of volatility as bullion coins because our commemorative coins typically carry a substantially higher premium over the spot metal price than bullion coins. Our commemorative coins are not hedged and are included in inventories at the lower of cost or net realizable value and totaled $709,000 and $406,000 as of September 30, 2021 and June 30, 2021, respectively.

Borrowed Precious Metals.  Borrowed precious metals inventory include: (i) metals held by suppliers as collateral on advanced pool metals, (ii) metals due to suppliers for the use of their consigned inventory, (iii) unallocated metal positions held by customers in the Company’s inventory, and (iv) shortages in unallocated metal positions held by the Company in the supplier’s inventory.  Unallocated or pool metal represents an unsegregated inventory position that is due on demand, in a specified physical form, based on the total ounces of metal held in the position. Amounts due under these arrangements require delivery either in the form of precious metals or cash. The Company's inventory included borrowed precious metals with market values totaling $18.2 million and $20.9 million as of September 30, 2021 and June 30, 2021, respectively, with a corresponding offsetting obligation reflected as liabilities on borrowed metals on the condensed consolidated balance sheets.

Product Financing Arrangements.  This inventory represents amounts held as security by lenders for obligations under product financing arrangements. The Company enters into a product financing agreement for the transfer and subsequent re-acquisition of gold and silver at an agreed-upon price based on the spot price with a third-party finance company. This inventory is restricted and is held at a custodial storage facility in exchange for a financing fee, paid to the third-party finance company.  During the term of the financing, the third-party finance company holds the inventory as collateral, and both parties intend for the inventory to be returned to the Company at an agreed-upon price based on the spot price on the finance arrangement termination date.  These transactions do not qualify as sales and have been accounted for as financing arrangements in accordance with ASC 470-40 Product Financing Arrangements. The obligation is stated at the amount required to repurchase the outstanding inventory. Both the product financing arrangements and the underlying inventory are carried at fair value, with changes in fair value included in cost of sales in the condensed consolidated statements of income. Such obligations totaled $219.4 million and $201.0 million as of September 30, 2021 and June 30, 2021, respectively.

24

The Company mitigates market risk of its physical inventory and open commitments through commodity hedge transactions. (See Note 11.)  As of September 30, 2021 and June 30, 2021, the unrealized losses resulting from the difference between market value and cost of physical inventory were $17.1 million and $5.6 million, respectively.

Premium component of inventory

The premium component, at market value, included in the inventory as of September 30, 2021 and June 30, 2021 totaled $16.0 million and $11.0 million, respectively.

 

7. PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consists of the following at September 30, 2021 and June 30, 2021:

 

in thousands

 

 

 

 

 

 

 

 

 

 

September 30,

2021

 

 

June 30,

2021

 

Office furniture, and fixtures

 

$

2,394

 

 

$

2,373

 

Computer equipment

 

 

1,102

 

 

 

1,069

 

Computer software

 

 

5,698

 

 

 

5,387

 

Plant equipment

 

 

5,848

 

 

 

5,535

 

Building

 

 

508

 

 

 

505

 

Leasehold improvements

 

 

3,010

 

 

 

3,009

 

Total depreciable assets

 

 

18,560

 

 

 

17,878

 

Less: Accumulated depreciation and amortization

 

 

(11,113

)

 

 

(10,714

)

Property and equipment not placed in service

 

 

1,430

 

 

 

1,409

 

Land

 

 

36

 

 

 

36

 

Property, plant, and equipment, net

 

$

8,913

 

 

$

8,609

 

 

Depreciation and amortization expense for the three months ended September 30, 2021 and 2020 was $0.4 million and $0.3 million, respectively. For the periods presented, no depreciation or amortization expense was allocated to cost of sales.

8. GOODWILL AND INTANGIBLE ASSETS

Goodwill is an intangible asset that arises when a company acquires an existing business or assets (net of assumed liabilities) which comprise a business.  In general, the amount of goodwill recorded in an acquisition is calculated as the purchase price of the business minus the fair market value of the tangible assets and the identifiable intangible assets, net of the assumed liabilities. Goodwill and intangibles can also be established by push-down accounting.  Below is a summary of the significant transactions that generated goodwill and intangible assets of the Company:

 

•

In connection with the acquisition of A-Mark by Spectrum Group International, Inc. in July 2005, the accounts of the Company were adjusted using the push down basis of accounting to recognize the allocation of the consideration paid to the respective net assets acquired. In accordance with the push down basis of accounting, the Company's net assets were adjusted to their fair values as of the date of the acquisition based upon an independent appraisal.

 

•

In connection with the Company's business combination with AMST in August 2016, the Company recorded an additional $2.5 million and $4.3 million of identifiable intangible assets and goodwill, respectively; these values were based upon an independent appraisal and represent their fair values at the acquisition date. The Company’s investment in AMST has resulted in synergies between the acquired minting operation and the Company’s established distribution network by providing a steadier and more reliable fabricated source of silver during times of market volatility. The Company considers that much of the acquired goodwill relates to the “ready state” of AMST's established minting operation with existing quality processes, procedures, and ability to scale production to meet market needs.

 

•

In connection with the Company's acquisition of Goldline in August 2017, the Company recorded $5.0 million and $1.4 million of additional identifiable intangible assets and goodwill, respectively; these values were based upon an independent appraisal and represent their fair values at the acquisition date. The Company’s investment in Goldline created synergies between Goldline's direct marketing operation and the Company’s established distribution network, secured storage and lending operations that has led to increased product margin spreads, and lower distribution and storage costs for Goldline.

25

 

•

In March 2021, the Company acquired 100% ownership of JMB, in which we previously held a 20.5% equity interest.  At the acquisition date we measured the value of identifiable intangible assets and goodwill at $98.0 million and $92.1 million, respectively.

Carrying Value

The carrying value of goodwill and other purchased intangibles as of September 30, 2021 and June 30, 2021 is as described below:

 

dollar amounts in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2021

 

 

June 30, 2021

 

 

 

Estimated

Useful

Lives

(Years)

 

Remaining

Weighted

Average

Amortization

Period

(Years)

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Accumulated

Impairment

 

 

Net

Book

Value

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Accumulated

Impairment

 

 

Net

Book

Value

 

Identifiable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Existing customer

   relationships

 

5 - 15

 

 

4.7

 

 

$

53,498

 

 

$

(23,032

)

 

$

—

 

 

$

30,466

 

 

$

53,498

 

 

$

(15,832

)

 

$

—

 

 

$

37,666

 

Developed technology

 

4

 

 

3.8

 

 

 

10,500

 

 

 

(1,397

)

 

 

—

 

 

 

9,103

 

 

 

10,500

 

 

 

(741

)

 

 

—

 

 

 

9,759

 

Non-compete and other

 

3 - 5

 

 

0.9

 

 

 

2,300

 

 

 

(2,272

)

 

 

—

 

 

 

28

 

 

 

2,300

 

 

 

(2,256

)

 

 

—

 

 

 

44

 

Employment agreement

 

1 - 3

 

 

0.0

 

 

 

295

 

 

 

(295

)

 

 

—

 

 

 

—

 

 

 

295

 

 

 

(295

)

 

 

—

 

 

 

—

 

Intangibles subject to amortization

 

 

 

 

 

 

 

 

66,593

 

 

 

(26,996

)

 

 

—

 

 

 

39,597

 

 

 

66,593

 

 

 

(19,124

)

 

 

—

 

 

 

47,469

 

Trade names and trademarks

 

Indefinite

 

Indefinite

 

 

 

47,454

 

 

 

—

 

 

 

(1,290

)

 

 

46,164

 

 

 

47,454

 

 

 

—

 

 

 

(1,290

)

 

 

46,164

 

Identifiable intangible assets

 

 

 

 

 

 

 

$

114,047

 

 

$

(26,996

)

 

$

(1,290

)

 

 

85,761

 

 

$

114,047

 

 

$

(19,124

)

 

$

(1,290

)

 

$

93,633

 

Goodwill

 

Indefinite

 

Indefinite

 

 

$

102,307

 

 

$

—

 

 

$

(1,364

)

 

$

100,943

 

 

$

102,307

 

 

$

—

 

 

$

(1,364

)

 

$

100,943

 

 

The Company's intangible assets are subject to amortization except for trade names and trademarks, which have an indefinite life. Existing customer relationships intangible assets are amortized in a manner reflecting the pattern in which the economic benefits of the assets are consumed.  All other intangible assets subject to amortization are amortized using the straight-line method over their useful lives, which are estimated to be one to fifteen years.  Amortization expense related to the Company's intangible assets for the three months ended September 30, 2021 and 2020 was $7.9 million and $0.2 million, respectively. For the presented periods, no amortization expense was allocated to cost of sales.

Impairment

The accumulated impairment charge of $2.7 million (goodwill and indefinite-lived intangible assets) was a non-recurring charge for fiscal 2018 related to the Direct-to-Consumer segment.  No further impairment of goodwill or indefinite-lived intangible assets has occurred since fiscal 2018.

Estimated Amortization

Estimated annual amortization expense related to definite-lived intangible assets for the succeeding five years is as follows (in thousands):

 

Fiscal Year Ending June 30,

 

Amount

 

2022 (9 months remaining)

 

 

17,797

 

2023

 

 

9,893

 

2024

 

 

7,382

 

2025

 

 

4,240

 

2026

 

 

47

 

Thereafter

 

 

238

 

Total

 

$

39,597

 

 

 

26

 

9. LONG-TERM INVESTMENTS

As of September 30, 2021, the Company had five investments in privately-held entities. The Company has determined that it is appropriate to account for four of these investments under the equity method of accounting, and the remaining investment under the cost-basis method of accounting.

The following table shows the carrying value and ownership percentage of the Company's investment in each entity:

 

 

 

September 30, 2021

 

 

June 30, 2021

 

Entity (1)

 

Carrying

Value

 

 

 

Ownership

Percentage

 

 

Carrying

Value

 

 

Ownership

Percentage

 

 

 

(in thousands)

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

Company A

 

$

4,056

 

 

 

 

7.4

%

 

$

3,795

 

 

 

7.4

%

Company C

 

 

12,036

 

(2)

 

 

49.0

%

 

 

1,940

 

 

 

10.0

%

Company D

 

 

11,358

 

 

 

 

44.9

%

 

 

10,499

 

 

 

44.9

%

Company E

 

 

233

 

 

 

 

33.3

%

 

 

233

 

 

 

33.3

%

Company F

 

 

2,000

 

 

 

 

50.0

%

 

 

2,000

 

 

 

50.0

%

 

 

$

29,683

 

 

 

 

 

 

 

$

18,467

 

 

 

 

 

 

(1)

JMB was previously reported as Company B. In March 2021, we acquired the remaining ownership interest in JMB that we did not previously own and consequently consolidated JMB as a wholly-owned subsidiary.

(2)

On August 27, 2021, the Company increased its ownership interest in Company C from 10% to 49%, for a purchase price of $9.75 million, consisting of $6.75 million in cash and 61,590 shares of the Company’s common stock.  The Company acquired its initial minority investment in January 2019.

 

The Company considers all of our equity method investees to be related parties. See Note 13 for a summary of the Company's aggregate balances and activity with these related party entities. Company E is a cost method investment, which is not a related party.

 

10. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES

Accounts payable and other current liabilities consist of the following:

 

in thousands

 

 

 

 

 

 

 

 

 

 

September 30,

2021

 

 

June 30,

2021

 

Trade payables to customers

 

$

20,716

 

 

$

1,561

 

Due to brokers

 

 

3,184

 

 

 

-

 

Other accounts payable

 

 

4,726

 

 

 

4,374

 

Deferred revenue

 

 

27,065

 

 

 

20,508

 

Advances from customers

 

 

123,107

 

 

 

173,908

 

 

 

$

178,798

 

 

$

200,351

 

 

 

11. DERIVATIVE INSTRUMENTS AND HEDGING TRANSACTIONS

The Company is exposed to market risk, such as changes in commodity prices and foreign exchange rates.  To manage the volatility related to these exposures, the Company enters into various derivative products, such as forwards and futures contracts.  By policy, the Company historically has entered into derivative financial instruments for the purpose of hedging substantially all of Company's market exposure to precious metals prices, and not for speculative purposes. The Company’s gains (losses) on derivative instruments are substantially offset by the changes in the fair market value of the underlying precious metals inventory, both of which are recorded in cost of sales in the condensed consolidated statements of income.

Commodity Price Management

The Company manages the value of certain assets and liabilities of its trading business, including trading inventory, by employing a variety of hedging strategies. These strategies include the management of exposure to changes in the market values of the Company's trading inventory through the purchase and sale of a variety of derivative instruments, such as forwards and futures contracts.

The Company enters into derivative transactions solely for the purpose of hedging its inventory subject to price risk, and not for speculative market purposes. Due to the nature of the Company's global hedging strategy, the Company is not using hedge accounting as defined under Topic 815 of the ASC, whereby the gains or losses would be deferred and included as a component of other comprehensive income.  Instead, gains or losses resulting from the Company's futures and forward contracts and open sale and purchase commitments are reported in the condensed consolidated statements of income as unrealized gains or losses on commodity contracts (a

27

component of cost of sales) with the related unrealized amounts due from or to counterparties reflected as derivative assets or liabilities on the condensed consolidated balance sheets.

The Company's trading inventory and purchase and sale transactions consist primarily of precious metal products. The value of these assets and liabilities are marked-to-market daily to the prevailing closing price of the underlying precious metals. The Company's precious metals inventory is subject to market value changes, created by changes in the underlying commodity market prices. Inventory purchased or borrowed by the Company is subject to price changes. Inventory borrowed is considered a natural hedge, since changes in value of the metal held are offset by the obligation to return the metal to the supplier.

The Company’s open sale and purchase commitments typically settle within 2 business days, and for those commitments that do not have stated settlement dates, the Company has the right to settle the positions upon demand. Futures and forwards contracts open at end of any period typically settle within 30 days. Open sale and purchase commitments are subject to changes in value between the date the purchase or sale price is fixed (the trade date) and the date the metal is received or delivered (the settlement date). The Company seeks to minimize the effect of price changes of the underlying commodity through the use of forward and futures contracts.

The Company's policy is to substantially hedge its inventory position, net of open sale and purchase commitments that are subject to price risk. The Company regularly enters into precious metals commodity forward and futures contracts with financial institutions to hedge price changes that would cause changes in the value of its physical metals positions and purchase commitments and sale commitments. The Company has access to all of the precious metals markets, allowing it to place hedges. The Company also maintains relationships with major market makers in every major precious metals dealing center.

The Company’s management sets credit and position risk limits. These limits include gross position limits for counterparties engaged in sales and purchase transactions with the Company. They also include collateral limits for different types of sale and purchase transactions that counterparties may engage in from time to time.

Derivative Assets and Liabilities

The Company's derivative assets and liabilities represent the net fair value of the difference (or intrinsic value) between market values and trade values at the trade date for open precious metals sale and purchase contracts, as adjusted on a daily basis for changes in market values of the underlying metals, until settled.  The Company's derivative assets and liabilities represent the net fair value of open precious metals forwards and futures contracts. The precious metals forwards and futures contracts are settled at the contract settlement date.

All of our commodity derivative contracts are under master netting arrangements and include both asset and liability positions (i.e., offsetting derivative instruments).  As such, for the Company's derivative contracts with the same counterparty, the receivables and payables have been netted on the condensed consolidated balance sheets.  Such derivative contracts include open sale and purchase commitments, futures, forwards and margin accounts.  In the table below, the aggregate gross and net derivative receivables and payables balances are presented by contract type and type of hedge, as of September 30, 2021 and June 30, 2021.

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2021

 

 

June 30, 2021

 

 

 

Gross

Derivative

 

 

Amounts

Netted

 

 

Cash

Collateral

Pledge

 

 

Net

Derivative

 

 

Gross

Derivative

 

 

Amounts

Netted

 

 

Cash

Collateral

Pledge

 

 

Net

Derivative

 

Nettable derivative assets:

 

 

 

Open sale and purchase commitments

 

$

18,388

 

 

$

(3,176

)

 

$

—

 

 

$

15,212

 

 

$

56,923

 

 

$

(18,583

)

 

$

—

 

 

$

38,340

 

Future contracts

 

 

23,289

 

 

 

—

 

 

 

—

 

 

 

23,289

 

 

 

4,510

 

 

 

—

 

 

 

—

 

 

 

4,510

 

Forward contracts

 

 

31,284

 

 

 

—

 

 

 

—

 

 

 

31,284

 

 

 

1,686

 

 

 

—

 

 

 

—

 

 

 

1,686

 

 

 

$

72,961

 

 

$

(3,176

)

 

$

—

 

 

$

69,785

 

 

$

63,119

 

 

$

(18,583

)

 

$

—

 

 

$

44,536

 

Nettable derivative liabilities:

 

 

 

Open sale and purchase commitments

 

$

68,392

 

 

$

(457

)

 

$

—

 

 

$

67,935

 

 

$

1,410

 

 

$

(1,167

)

 

$

—

 

 

$

243

 

Margin accounts

 

 

6,257

 

 

 

—

 

 

 

(4,095

)

 

 

2,162

 

 

 

7,322

 

 

 

—

 

 

 

(4,516

)

 

 

2,806

 

Future contracts

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

465

 

 

 

—

 

 

 

—

 

 

 

465

 

Forward contracts

 

 

251

 

 

 

—

 

 

 

—

 

 

 

251

 

 

 

4,025

 

 

 

—

 

 

 

—

 

 

 

4,025

 

 

 

$

74,900

 

 

$

(457

)

 

$

(4,095

)

 

$

70,348

 

 

$

13,222

 

 

$

(1,167

)

 

$

(4,516

)

 

$

7,539

 

 

Gains or Losses on Derivative Instruments

The Company records the derivative at the trade date with a corresponding unrealized gains (losses), shown as a component of cost of sales in the condensed consolidated statements of income. The Company adjusts the derivatives to fair value on a daily basis until the transactions are settled. When these contracts are net settled, the unrealized gains and losses are reversed and the realized gains and losses for forward contracts are recorded in revenue and cost of sales, and the net realized gains and losses for futures and option contracts are recorded in cost of sales.

28

Below is a summary of the net gains (losses) on derivative instruments for the three months ended September 30, 2021 and 2020.

 

in thousands

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

September 30,

2021

 

 

September 30,

2020

 

Gains (losses) on derivative instruments:

 

 

 

Unrealized (losses) gains on open future commodity and forward contracts and open sale and purchase commitments, net

 

$

(38,072

)

 

$

78,277

 

Realized gains (losses) on future commodity contracts, net

 

 

41,181

 

 

 

(104,835

)

 

 

$

3,109

 

 

$

(26,558

)

 

The Company’s net gains (losses) on derivative instruments, as shown in the table above, were substantially offset by the changes in fair market value of the underlying precious metals inventory and open sale and purchase commitments, which were also recorded in cost of sales in the condensed consolidated statements of income.

Summary of Hedging Positions

In a hedging relationship, the change in the value of the derivative financial instrument is offset to a great extent by the change in the value of the underlying hedged item. The following table summarizes the results of our hedging activities, which shows the precious metal commodity inventory position, net of open sale and purchase commitments that is subject to price risk as of September 30, 2021 and June 30, 2021.

 

in thousands

 

 

 

 

 

 

 

 

 

 

September 30,

2021

 

 

June 30,

2021

 

Inventories

 

$

565,705

 

 

$

458,019

 

Precious metals held under financing arrangements

 

 

130,618

 

 

 

154,742

 

 

 

 

696,323

 

 

 

612,761

 

Less unhedgeable inventories:

 

 

 

 

 

 

 

 

Commemorative coin inventory, held at lower of cost or net realizable value

 

 

(709

)

 

 

(406

)

Premium on metals position

 

 

(16,035

)

 

 

(11,017

)

Precious metal value not hedged

 

 

(16,744

)

 

 

(11,423

)

 

 

 

679,579

 

 

 

601,338

 

Commitments at market:

 

 

 

 

 

 

 

 

Open inventory purchase commitments

 

 

598,731

 

 

 

987,926

 

Open inventory sales commitments

 

 

(383,666

)

 

 

(590,156

)

Margin sale commitments

 

 

(6,257

)

 

 

(7,322

)

In-transit inventory no longer subject to market risk

 

 

(22,674

)

 

 

(16,707

)

Unhedgeable premiums on open commitment positions

 

 

4,504

 

 

 

8,638

 

Borrowed precious metals

 

 

(74,618

)

 

 

(91,866

)

Product financing arrangements

 

 

(219,420

)

 

 

(201,028

)

Advances on industrial metals

 

 

289

 

 

 

287

 

 

 

 

(103,111

)

 

 

89,772

 

Precious metal subject to price risk

 

 

576,468

 

 

 

691,110

 

Precious metal subject to derivative financial instruments:

 

 

 

 

 

 

 

 

Precious metals forward contracts at market values

 

 

226,868

 

 

 

175,352

 

Precious metals futures contracts at market values

 

 

347,938

 

 

 

514,240

 

Total market value of derivative financial instruments

 

 

574,806

 

 

 

689,592

 

 

 

 

 

 

 

 

 

 

Net precious metals subject to commodity price risk

 

$

1,662

 

 

$

1,518

 

 

29

 

Notional Balances of Derivatives

The notional balances of the Company's derivative instruments, consisting of contractual metal quantities, are expressed at current spot prices of the underlying precious metal commodity. As of September 30, 2021 and June 30, 2021, the Company had the following outstanding commitments and open forward and future contracts:

 

in thousands

 

 

 

 

 

 

 

 

 

 

September 30,

2021

 

 

June 30,

2021

 

Purchase commitments

 

$

598,731

 

 

$

987,926

 

Sales commitments

 

$

(383,666

)

 

$

(590,156

)

Margin sales commitments

 

$

(6,257

)

 

$

(7,322

)

Open forward contracts

 

$

226,868

 

 

$

175,352

 

Open futures contracts

 

$

347,938

 

 

$

514,240

 

 

The contract amounts (i.e., notional balances) of the Company's forward and futures contracts and the open sales and purchase commitments are not reflected in the accompanying condensed consolidated balance sheet. The Company records the difference between the market price of the underlying metal or contract and the trade amount at fair value.

The Company is exposed to the risk of failure of the counterparties to its derivative contracts. Significant judgment is applied by the Company when evaluating the fair value implications. The Company regularly reviews the creditworthiness of its major counterparties and monitors its exposure to concentrations. At September 30, 2021, the Company believes its risk of counterparty default is mitigated as a result of such evaluation and the short-term duration of these arrangements.

Foreign Currency Exchange Rate Management

The Company utilizes foreign currency forward contracts to manage the effect of foreign currency exchange fluctuations on its sale and purchase transactions.  These contracts generally have maturities of less than one week.  

Unrealized losses on foreign exchange derivative instruments related to open trades are shown on the face of the condensed consolidated statements of income totaled $224,000 and $97,000 for the three months ended September 30, 2021 and 2020, respectively. The market values (fair values) of the Company’s foreign exchange forward contracts and the net open sale and purchase commitment transactions, denominated in foreign currencies, outstanding are as follows:

 

in thousands

 

 

 

 

 

 

 

 

 

 

September 30,

2021

 

 

June 30,

2021

 

Foreign exchange forward contracts

 

$

13,784

 

 

$

6,541

 

Open sale and purchase commitment transactions, net

 

$

15,300

 

 

$

4,311

 

 

 

12. INCOME TAXES

Net income from operations before provision for income taxes is shown below:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

September 30,

2021

 

 

 

September 30,

2020

 

U.S.

 

 

$

32,770

 

 

 

$

30,211

 

Foreign

 

 

 

23

 

 

 

 

6

 

 

 

 

$

32,793

 

 

 

$

30,217

 

 

 

 

 

 

 

 

 

 

 

 

 

30

 

The Company files a consolidated federal income tax return based on a June 30 tax year end. The provision for income tax expense by jurisdiction and the effective tax rate for the three months ended September 30, 2021 and 2020 are shown below:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

September 30,

2021

 

 

 

September 30,

2020

 

Federal

 

 

$

5,819

 

 

 

$

5,849

 

State and local

 

 

 

844

 

 

 

 

658

 

Foreign

 

 

 

6

 

 

 

 

4

 

Income tax expense

 

 

$

6,669

 

 

 

$

6,511

 

 

 

 

 

 

 

 

 

 

 

 

Effective tax rate

 

 

 

20.3

%

 

 

 

21.5

%

 

Our effective tax rate was approximately 20.3% and 21.5% for the three months ended September 30, 2021 and 2020, respectively.  For the three months ended September 30, 2021, our effective tax rate differs from the federal statutory rate primarily due to the excess tax benefit from share based compensation, the foreign derived intangible income special deduction, offset by state taxes (net of federal tax benefit), and other normal course non-deductible expenditures.  For the three months ended September 30, 2020, the Company recorded tax expense which differed from the statutory rates primarily due to the foreign derived intangible income special deduction, offset by state taxes (net of federal tax benefit), and other normal course non-deductible expenditures.

Tax Balances and Activity

Income Taxes Receivable and Payable

As of September 30, 2021 and June 30, 2021, income tax payable totaled $7.1 million and $5.0 million, respectively.  

Deferred Tax Assets and Liabilities

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized by evaluating both positive and negative evidence. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.  As of September 30, 2021 and June 30, 2021, management concluded that it was more likely than not that the Company would be able to realize the benefit of the U.S. federal and state deferred tax assets. We based this conclusion on historical and projected operating performance, as well as our expectation that our operations will generate sufficient taxable income in future periods to realize the tax benefits associated with the deferred tax assets.  A tax valuation allowance was considered unnecessary as of management concluded that it was more likely than not that the Company would be able to realize the benefit of the U.S. federal and state deferred tax assets.

As of September 30, 2021, the condensed consolidated balance sheet reflects the deferred tax items for each tax-paying component (i.e., federal and state), resulting in a state deferred tax liability of $1.5 million and a federal deferred tax liability of $16.5 million.  As of June 30, 2021, the condensed consolidated balance sheet reflects the deferred tax items for each tax-paying component (i.e., federal and state), resulting in a state deferred tax liability of $1.7 million primarily comprised of net operating loss carryforwards and a federal deferred tax liability of $17.8 million.

On March 19, 2021, JMB became a wholly owned subsidiary of the Company as a result of our acquisition of the remaining interest that we did not previously own.  On the Acquisition Date, the Company has considered the deferred tax impact of the excess fair value of the assets and liabilities accounted for in the business combination over their historical cost basis. Included in the June 30, 2021 balance is $21.1 million of deferred tax liabilities, $20.8 million of which relates to the excess fair value of intangibles other than goodwill over their historical cost basis and $0.3 million relating to JMB’s historical carryover deferred taxes that we assumed.

 

 

31

 

Net Operating Loss Carryforwards

As of September 30, 2021 and June 30, 2021, the Company has approximately $12.2 million and $12.2 million, state and city net operating loss carryforwards, respectively. The Company's combined state and city tax-effected net operating loss carryforwards totaled, as of September 30, 2021 and June 30, 2021, $0.9 million and $0.9 million, respectively.  These state and city net operating loss carryforwards start to expire in the year ending June 30, 2030.

Unrecognized Tax Benefits

The Company has taken or expects to take certain tax benefits on its income tax return filings that it has not recognized a tax benefit (i.e., an unrecognized tax benefit) on its condensed consolidated statements of income. The Company's measurement of its uncertain tax positions is based on management's assessment of all relevant information, including, but not limited to prior audit experience, audit settlement, or lapse of the applicable statute of limitations.  For the three months ended September 30, 2021, there was no material movement in unrecognized tax benefits including interest and penalties.

In fiscal 2021, JMB became a wholly owned subsidiary of the Company as a result of our taxable stock purchase of the remaining interest in JMB.  We have considered JMB in our analysis of unrecognized tax benefit and increases during the year reflect certain inherited uncertain tax positions of JMB.

Tax Examinations

There has been no material change to our open tax examinations. Information related to open tax examinations is included in our 2021 Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

 

 

 

Related parties are entities that the Company controls or has the ability to significantly influence. Related parties also include persons who are affiliated with related entities or the Company who are in a position to influence corporate decisions (such as owners, executives, board members and their families).  In the normal course of business, we enter into transactions with our related parties. Below is a list of related parties with whom we have had significant transactions during the presented periods:

 

1)

Stack’s Bowers Numismatics, LLC ("Stack's Bowers Galleries").  Stack's Bowers Galleries is a wholly-owned subsidiary of Spectrum Group International, Inc. ("SGI").  In March 2014, SGI distributed all of the shares of common stock of A-Mark to its stockholders, effecting a spinoff of A-Mark from SGI. As a result of this distribution the Company became a publicly traded company independent from SGI. SGI and the Company have a common chief executive officer, and the chief executive officer and the general counsel of the Company are board members of SGI.

 

2)

Silver Towne, L.P.  Through March 31, 2021, Silver Towne L.P. was a noncontrolling owner of AMST and all subsequent transactions with them are considered to be activity with an unrelated third-party.

 

3)

Equity method investees.  As of September 30, 2021, the Company has four  investments in privately-held entities, each of which has been determined to be an equity method investee and a related party.

Our related party transactions include (i) sales and purchases of precious metals (ii) financing activities (iii) repurchase arrangements, and (iv) hedging transactions.  Below is a summary of our related party transactions. The amounts presented for each period were based on each entity’s related party status for that period.

Balances with Related Parties  

Receivables and Payables, Net

As of September 30, 2021 and June 30, 2021, the Company had related party receivables and payables balances as set forth below:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2021

 

 

 

June 30, 2021

 

 

 

Receivables

 

 

 

Payables

 

 

 

Receivables

 

 

 

Payables

 

Stack's Bowers Galleries

 

$

—

 

 

 

$

11

 

 

 

$

3,576

 

 

 

$

—

 

Equity method investees

 

 

9,809

 

(1)

 

 

453

 

 

 

 

10,693

 

 

 

 

84

 

 

 

$

9,809

 

 

 

$

464

 

 

 

$

14,269

 

 

 

$

84

 

 

(1)

Balance primarily represents receivables, net (shown as components of receivables and derivative assets).

32

 

Long-term Investments

As of September 30, 2021 and June 30, 2021, the aggregate carrying balance of the equity method investments was $29.5 million and $18.2 million, respectively. (See Note 9.)

Secured Loans Receivable

On September 19, 2017, CFC entered into a loan agreement with Stack's Bowers Galleries providing a secured line of credit, bearing interest at a competitive rate per annum, with a maximum borrowing line (subject to temporary increases) of $5.3 million. The loan is secured by precious metals and numismatic products.  As of September 30, 2021 and June 30, 2021, the outstanding principal balance of this loan was $0.0 million and $0.0 million, respectively.

On March 1, 2018, CFC entered into a loan agreement with Stack's Bowers Galleries providing a secured line of credit on the wholesale value (i.e., the excess over the spot value of the metal), of numismatic products bearing interest at a competitive rate per annum, with a maximum borrowing line (subject to temporary increases) of $10.0 million. In addition to the annual rate of interest, the Company is entitled to receive a participation interest equal to 10% of the net profits realized by Stack's Bowers Galleries on the ultimate sale of the products.  As of September 30, 2021 and June 30, 2021, the outstanding principal balance of this loan was $0.0 million and $3.0 million, respectively.

Activity with Related Parties

Sales and Purchases

During the three months ended September 30, 2021 and 2020, the Company made sales and purchases to various companies, which have been deemed to be related parties, as follows:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

September 30, 2021

 

 

September 30, 2020

 

 

 

 

Sales

 

 

Purchases

 

 

Sales

 

 

Purchases

 

 

Stack's Bowers Galleries

 

$

6,348

 

 

$

15,379

 

 

$

21,954

 

 

$

22,013

 

 

Equity method investees

 

 

117,666

 

 

 

9,253

 

 

 

480,500

 

(1)

 

2,546

 

(1)

SilverTowne L.P.

 

 

—

 

 

 

—

 

 

 

4,117

 

 

 

4,769

 

 

 

 

$

124,014

 

 

$

24,632

 

 

$

506,571

 

 

$

29,328

 

 

 

(1)

Includes sales and purchases activity with JMB, which the Company fully acquired in March 2021.

Interest Income

During the three months ended September 30, 2021 and 2020, the Company earned interest income related to loans made to Stack's Bowers and from financing arrangements (including repurchase agreements) with affiliated companies, as set forth below:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

September 30,

2021

 

 

 

September 30,

2020

 

Interest income from secured loans receivables

 

$

58

 

 

 

$

70

 

Interest income from finance products and repurchase arrangements

 

 

2,111

 

 

 

 

1,867

 

 

 

$

2,169

 

 

 

$

1,937

 

 

33

 

Equity method investments — Earnings

During the three months ended September 30, 2021 and 2020, the Company recorded its proportional share of its equity method investee's net income as other income that totaled $1.5 million and $4.1 million, respectively. As a result of our acquisition of JMB in March 2021, the Company no longer accounts for the subsidiary’s earnings under the equity method. For the three months ended September 30, 2021, the Company accounted for JMB’s earnings as a wholly owned subsidiary in the Company’s consolidated results.

Other Income

During the three months ended September 30, 2021 and 2020, the Company earned royalty income related to one of CFC's secured lending agreements with Stack's Bowers that totaled $0.4 million and $0.4 million, respectively.

14. FINANCING AGREEMENTS

Lines of Credit

Effective March 26, 2021, through an amendment and restatement of the applicable credit documents, A-Mark renewed its uncommitted demand borrowing facility ("Trading Credit Facility") with a syndicate of banks. Under the agreements, Coöperatieve Rabobank U.A. acts as lead lender and administrative agent, and Macquarie Bank Limited acts as syndication agent.  The Trading Credit Facility is secured by substantially all of the Company’s assets on a first priority basis and subsidiary guarantees, except for CFC.

As of September 30, 2021, and as a result of various amendments, the Trading Credit Facility provided the Company with access up to $330.0 million, featuring a $280.0 million base, with a $50.0 million accordion option.  The Trading Credit Facility is scheduled to mature on March 25, 2022.  Loan costs have been capitalized when incurred and are amortized over the term of the Trading Credit Facility.  As of September 30, 2021 and June 30, 2021, the remaining unamortized balance of loan costs was approximately $0.8 million and $0.9 million, respectively.

The Company routinely uses the Trading Credit Facility to purchase and finance precious metals and for operating cash flow purposes. Amounts under the Trading Credit Facility bear interest based on London Interbank Offered Rate (“LIBOR”) plus a 2.50% margin for revolving credit line loans. The one-month LIBOR rate was approximately 0.08% and 0.10% as of September 30, 2021 and June 30, 2021, respectively. The Trading Credit Facility agreement contains provisions to accommodate the replacement of the existing LIBOR-based rate with a successor Secured Overnight Financing Rate (“SOFR”) based rate upon a triggering event.

Borrowings are due on demand and totaled $194.0 million and $185.0 million at September 30, 2021 and June 30, 2021, respectively. The amounts available under the respective lines of credit are determined at the end of each week and at each month end following a specified borrowing base formula.  The Company is able to access additional credit as needed to finance operations, subject to the overall limits of the borrowing facilities and lender approval of the borrowing base calculation. Based on the month end borrowing bases in effect, the availability under the Trading Credit Facility, after taking into account current borrowings, totaled $84.5 million and $65.4 million as determined on September 30, 2021 and June 30, 2021, respectively.

The Trading Credit Facility contains various restrictive financial covenants, all of which the Company was in compliance with as of September 30, 2021.

Interest expense related to the Company’s lines of credit totaled $2.0 million and $1.6 million, which represents 36.3% and 36.9% of the total interest expense recognized, for the three months ended September 30, 2021 and 2020, respectively. Our lines of credit carried a daily weighted average effective interest rate of 3.55% and 3.43%, respectively, for the three months ended September 30, 2021 and 2020.

Notes Payable

In September 2018, AM Capital Funding, LLC. (“AMCF”), a wholly owned subsidiary of CFC, completed an issuance of Secured Senior Term Notes (collectively, the "Notes"): Series 2018-1, Class A (the “Class A Notes”) in the aggregate principal amount of $72.0 million and Secured Subordinated Term Notes, Series 2018-1, Class B (the “Class B Notes” and together with the Class A Notes, the “Notes”) in the aggregate principal amount of $28.0 million.  The Class A Notes bear interest at a rate of 4.98% and the Class B Notes bear interest at a rate of 5.98%.  The Notes have a maturity date of December 15, 2023. The Notes were issued under a Master Indenture and the Series 2018-1 Supplement thereto between AMCF and Citibank, N.A., as trustee.  The Company holds $5.0 million of the Class B Notes in order to comply with the Credit Risk Retention Rules of Section 15G of the Securities Exchange Act of 1934.  The $5.0 million portion of the Class B Notes retained by the Company is eliminated in consolidation.

AMCF applied the net proceeds from the sale to the Company’s purchase loans and precious metals inventory, and to pay certain costs and expenses. CFC and A-Mark may from time to time also contribute cash or sell precious metals to AMCF in exchange for cash or subordinated, deferred payment obligations from AMCF.  In addition, AMCF may from time to time sell precious metals to A-Mark for cash.

34

As of September 30, 2021, the consolidated carrying balance of the Notes was $93.4 million (which excludes the $5.0 million note that the Company retained), and the remaining unamortized loan cost balance was approximately $1.6 million, which is amortized using the effective interest method through the maturity date.  As of September 30, 2021, the balance of the interest payable was $0.2 million.  Interest on the Notes is payable monthly in arrears at the aggregate rate of 5.26% per annum.

For the three months ended September 30, 2021 and 2020, the interest expense related to the Notes (including loan amortization costs) totaled $1.4 million and $1.4 million, which represents 26.3% and 33.0% of the total interest expense recognized by the Company, respectively.  For the three months ended September 30, 2021 and 2020, the Notes' weighted average effective interest rate was 5.88% and 5.88%, respectively.

Liabilities on Borrowed Metals

The Company recorded liabilities on borrowed precious metals with market values totaling $74.6 million as of September 30, 2021, with corresponding metals totaling $56.4 million and $18.2 million included in precious metals held under financing arrangements and inventories, respectively, on the condensed consolidated September 30, 2021 balance sheet.  The Company recorded liabilities on borrowed metals with market values totaling $91.9 million as of June 30, 2021 with corresponding metals totaling $71.0 million and $20.9 million included in precious metals held under financing arrangements and inventories, respectively, on the condensed consolidated June 30, 2021 balance sheet.

Advanced pool metals

The Company borrows precious metals from its suppliers and customers under short-term agreements using other precious metals from its inventory as collateral. The Company has the ability to sell the metals advanced. These arrangements can be settled by repayment in similar metals or in cash.  Once the obligation is settled, the metals held as collateral are released back to the Company.

Liabilities on borrowed metals — Other

Liabilities may also arise from: (i) unallocated metal positions held by customers in the Company’s inventory, (ii) amounts due to suppliers for the use of their consigned inventory, and (iii) shortages in unallocated metal positions held by the Company in the supplier’s inventory.  Unallocated or pool metal represent an unsegregated inventory position that is due on demand, is a specified physical form, based on the total ounces of metal held in the position.  Amounts due under these arrangements require delivery either in the form of precious metals, or in cash.

Product Financing Arrangements

The Company has agreements with third party financial institutions which allow the Company to transfer its gold and silver inventory at an agreed-upon price, which is based on the spot price. Such agreements allow the Company to repurchase this inventory at an agreed-upon price based on the spot price on the repurchase date. The third party charges a monthly fee as a percentage of the market value of the outstanding obligation; such monthly charges are classified in interest expense. These transactions do not qualify as sales, and therefore have been accounted for as financing arrangements and are reflected in the condensed consolidated balance sheet as product financing arrangements. The obligation is stated at the amount required to repurchase the outstanding inventory. Both the product financing obligation and the underlying inventory (which is entirely restricted) are carried at fair value, with changes in fair value recorded as a component of cost of sales in the condensed consolidated statements of income. Such obligations totaled $219.4 million and $201.0 million as of September 30, 2021 and June 30, 2021, respectively.

 

15. COMMITMENTS AND CONTINGENCIES

Refer to Note 2 for information relating to minimum rental payments under operating and finance leases.  Refer to Note 15 of the Notes to Consolidated Financial Statements in the 2021 Annual Report for information relating to consulting and employment contracts, and other commitments.  The Company is not aware of any material changes to commitments as summarized in the 2021 Annual Report.

Legal Matters

The Company is from time to time party to various lawsuits, claims and other proceedings that arise in the ordinary course of its business. In accordance with GAAP, we review the need for any loss contingency reserves and establish reserves when, in the opinion of management, it is probable that a matter would result in a liability and the amount of loss, if any, can be reasonably estimated. Additionally, we record receivables for insurance recoveries relating to litigation-related losses and expenses if and when such amounts are covered by insurance and recovery of such losses or expenses are due. We review our litigation matters each quarter to assess whether loss contingency reserves are required in accordance with GAAP. 

35

COVID-19

The Company remains exposed to the effects of the COVID-19 pandemic.  The pandemic has caused significant disruption in the financial markets both globally and in the United States. The resulting macroeconomic events have contributed to an increase in the business conducted by the Company, but also pose certain risks and uncertainties for the Company.  The Company does not know how long the COVID-19 pandemic will continue, the extent to which the effects that the Company has experienced from the pandemic thus far will persist, or whether other effects on the Company and its businesses will materialize in the short or long term.

 

16. STOCKHOLDERS’ EQUITY

Shelf Registration Statement

On September 25, 2020, the Company filed a universal shelf registration statement on Form S-3, which was declared effective by the Securities and Exchange Commission (the “SEC”) on March 4, 2021, on which the Company registered for sale up to $150 million of any combination of its debt securities, shares of common stock, shares of preferred stock, rights, warrants, units and/or purchase contracts from time to time and at prices and on terms that the Company may determine. After a public offering in March 2021, approximately $69.5 million of securities remain available for issuance under this shelf registration statement. This registration statement will remain in effect until March 2024.

Issuance of Common Stock in Connection with Increase in Long Term Investments

On August 27, 2021, the Company issued 61,590 shares of its common stock as partial consideration for its acquisition of an additional ownership interest in an equity method investment. (See Note 9).

Share Repurchase Program

In April 2018, the Company's Board of Directors approved a share repurchase program which authorizes the Company to purchase up to 500,000 shares of its common stock from time to time, either in the open market or in block purchase transactions. The amount and timing of specific repurchases are subject to market conditions, applicable legal requirements, and other factors.  As of September 30, 2021, no shares had been repurchased under the program.

Dividends

On August 30, 2021, the Company's Board of Directors declared a non-recurring special dividend of $2.00 per common share to stockholders of record at the close of business on September 20, 2021.  The dividends were paid on September 24, 2021 and totaled $22.6 million.

2014 Stock Award and Incentive Plan

The Company's amended and restated 2014 Stock Award and Incentive Plan (the "2014 Plan") was approved by the Company's stockholders on November 2, 2017.  As of September 30, 2021, 94,887 shares were available for issuance under the 2014 Plan, which terminates in 2027.

Under the 2014 Plan, the Company may grant options and other equity awards as a means of attracting and retaining officers, employees, non-employee directors and consultants, to provide incentives to such persons, and to align the interests of such persons with the interests of stockholders by providing compensation based on the value of the Company's stock. Awards under the 2014 Plan may be granted in the form of incentive or non-qualified stock options, stock appreciation rights ("SARs"), restricted stock, restricted stock units ("RSUs"), dividend equivalent rights and other stock-based awards (which may include outright grants of shares). The 2014 Plan also authorizes grants of performance-based, market-based, and cash incentive awards. The 2014 Plan is administered by the Compensation Committee of the Board of Directors, which, in its discretion, may select officers and other employees, directors (including non-employee directors) and consultants to the Company and its subsidiaries to receive grants of awards. The Board of Directors itself may perform any of the functions of the Compensation Committee under the 2014 Plan.

Under the 2014 Plan, the exercise price of options and base price of SARs, as set by the Compensation Committee, generally may not be less than the fair market value of the shares on the date of grant, and the maximum term of stock options and SARs is 10 years. The 2014 Plan limits the number of share-denominated awards that may be granted to any one eligible person to 250,000 shares in any fiscal year.  Also, in the case of non-employee directors, the 2014 Plan limits the maximum grant-date fair value at $300,000 of stock-denominated awards granted to a director in a given fiscal year, except for a non-employee Chairman of the Board whose grant-date fair value maximum is $600,000 per fiscal year. The 2014 Plan will terminate when no shares remain available for issuance and no awards remain outstanding; however, the authority to grant new awards will terminate on November 2, 2027.

 

As of September 30, 2021 there were no awards with performance conditions nor awards with market conditions.

36

Stock Options

During the three months ended September 30, 2021 and 2020, the Company incurred $348,471 and $178,428 of compensation expense related to stock options, respectively.  As of September 30, 2021, there was total remaining compensation expense of $2,881,679 related to employee stock options, which will be recorded over a weighted average vesting period of approximately 2.0 years.

An obligatory event was triggered as a result of the non-recurring special dividends declared on August 30, 2021. In accordance with the terms of the Company’s equity award plans under which the options were issued, an adjustment was required to protect the holders of such stock options from decreases in the value of the stock options due to payment of the non-recurring special dividends. This event decreased the exercise price of outstanding stock options by $2.00 per dividend, effective on the date of record (September 20, 2021).  The fair value of the options before and after these events were unchanged and therefore no incremental stock-based compensation was recorded.

The following table summarizes the stock option activity for the three months ended September 30, 2021.

 

 

 

Options

 

 

Weighted

Average

Exercise

Price Per

Share

 

 

Aggregate

Intrinsic Value

(in thousands)

 

 

Weighted

Average

Grant Date

Fair Value

Per Award

 

Outstanding at June 30, 2021

 

 

1,159,028

 

 

$

16.01

 

 

$

35,343

 

 

$

6.88

 

Exercises

 

 

(60,981

)

 

$

12.61

 

 

 

 

 

 

 

 

 

Outstanding at September 30, 2021

 

 

1,098,047

 

 

$

14.14

 

 

$

50,383

 

 

$

6.89

 

Exercisable at September 30, 2021

 

 

678,558

 

 

$

11.93

 

 

$

32,629

 

 

$

5.78

 

 

Following is a summary of the status of stock options outstanding as of September 30, 2021.

 

Exercise Price Ranges

 

 

Options Outstanding

 

 

Options Exercisable

 

From

 

 

To

 

 

Number of

Shares

Outstanding

 

 

Weighted

Average

Remaining

Contractual

Life (Years)

 

 

Weighted

Average

Exercise Price

 

 

Number of

Shares

Exercisable

 

 

Weighted

Average

Remaining

Contractual

Life (Years)

 

 

Weighted

Average

Exercise Price

 

$

—

 

 

$

10.00

 

 

 

542,399

 

 

 

6.22

 

 

$

5.31

 

 

 

308,911

 

 

 

4.73

 

 

$

5.47

 

$

10.01

 

 

$

15.00

 

 

 

169,398

 

 

 

5.03

 

 

$

14.09

 

 

 

161,064

 

 

 

4.89

 

 

$

14.28

 

$

15.01

 

 

$

25.00

 

 

 

231,667

 

 

 

4.92

 

 

$

19.68

 

 

 

205,000

 

 

 

4.40

 

 

$

19.55

 

$

25.01

 

 

$

60.00

 

 

 

154,583

 

 

 

9.44

 

 

$

36.87

 

 

 

3,583

 

 

 

9.08

 

 

$

27.83

 

 

 

 

 

 

 

 

 

 

1,098,047

 

 

 

6.22

 

 

$

14.14

 

 

 

678,558

 

 

 

4.69

 

 

$

11.93

 

 

The following table summarizes the nonvested stock option activity for the three months ended September 30, 2021.

 

 

 

Options

 

 

 

Weighted

Average

Grant Date

Fair Value

Per Award

 

Nonvested Outstanding at June 30, 2021

 

 

466,377

 

 

 

$

8.52

 

Vested

 

 

(46,888

)

 

 

$

7.00

 

Nonvested Outstanding at September 30, 2021

 

 

419,489

 

 

 

$

8.69

 

Restricted Stock Units  

RSUs granted by the Company are not transferable and automatically convert to shares of common stock on a one-for-one basis as the awards vest.

During the three months ended September 30, 2021 and 2020, the Company incurred $124,815 and $0 of compensation expense related to RSUs, respectively. As of September 30, 2021, there is $239,899 remaining compensation expense related to RSUs.

37

The following table summarizes the RSU activity for the three months ended September 30, 2021:

 

 

 

Awards

Outstanding

 

 

 

Weighted

Average

Fair Value

per Unit

at Grant Date

 

Outstanding at June 30, 2021

 

 

12,721

 

 

 

$

37.72

 

Shares granted

 

 

56

 

(1)

 

$

—

 

Outstanding at September 30, 2021

 

 

12,777

 

 

 

$

37.55

 

Exercisable at September 30, 2021

 

 

—

 

 

 

$

—

 

 

(1)

Award adjusted due to the special dividend declared on August 30, 2021, in order to preserve the value of the underlying award, which was required based on an existing antidilution provision.

Certain Anti-Takeover Provisions

The Company’s certificate of incorporation and by-laws contain certain anti-takeover provisions that could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of the Company without negotiating with its Board. Such provisions could limit the price that certain investors might be willing to pay in the future for the Company’s securities. Certain of such provisions allow the Company to issue preferred stock with rights senior to those of the common stock or impose various procedural and other requirements which could make it more difficult for stockholders to effect certain corporate actions.

17. CUSTOMER AND SUPPLIER CONCENTRATIONS

Customer Concentration

No single customer provided 10 percent or more of the Company's revenues for three months ended September 30, 2021.

 

Customers providing 10 percent or more of the Company's accounts receivable as of September 30, 2021 and June 30, 2021 are presented on a comparative basis in the table below.

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2021

 

 

June 30, 2021

 

 

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

Total accounts receivable

 

$

104,522

 

 

 

100.0

%

 

$

89,000

 

 

 

100.0

%

Customer concentrations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer A

 

$

71,662

 

 

 

68.6

%

 

$

15,588

 

 

 

17.5

%

 

 

$

71,662

 

 

 

68.6

%

 

$

15,588

 

 

 

17.5

%

 

No single customer provided 10 percent or more of the Company's secured loan receivable balances as of as of September 30, 2021.

Supplier Concentration

The Company buys precious metals from a variety of sources, including through brokers and dealers, from sovereign and private mints, from refiners and directly from customers. The Company believes that no one or small group of suppliers is critical to its business, since other sources of supply are available that provide similar products on comparable terms.

 

38

 

18. SEGMENTS AND GEOGRAPHIC INFORMATION

The Company evaluates segment reporting in accordance with FASB ASC 280, Segment Reporting, each reporting period, including evaluating the organizational structure and the reporting package that is reviewed by the chief operating decision makers. The Company's operations are organized under three business segments —(i) Wholesale Sales & Ancillary Services (formerly known as Wholesale Trading & Ancillary Services), (ii) Direct-to-Consumer (formerly known as Direct Sales), and (iii) Secured Lending. The Wholesale Sales & Ancillary Services segment includes the consolidating eliminations of inter-segment transactions and unallocated segment adjustments. (See Note 1 for a description of the types of products and services from which each reportable segment derives its revenues.)

Revenue

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

September 30,

2021

 

 

 

September 30,

2020

 

 

Revenue by segment(1)

 

 

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

$

1,940,843

 

 

 

$

1,834,229

 

 

Eliminations of inter-segment sales

 

 

(440,833

)

 

 

 

(20,521

)

 

Wholesale Sales & Ancillary Services, net of eliminations (2)

 

 

1,500,010

 

 

 

 

1,813,708

 

 

Direct-to-Consumer

 

 

513,961

 

(a)

 

 

52,408

 

(b)

 

 

$

2,013,971

 

 

 

$

1,866,116

 

 

 

(1)

The Secured Lending segment earns interest income from its lending activity and earns no revenue from the sales of precious metals. Therefore, no amounts are shown for the Secured Lending segment in the above table.

(2)

The eliminations of inter-segment sales are reflected in the Wholesale Sales & Ancillary Services segment.

(a)

Includes $1.1 million of inter-segment sales from the Direct-to-Consumer segment to the Wholesale Sales & Ancillary Services segment.

(b)

Includes $4.7 million of inter-segment sales from the Direct-to-Consumer segment to the Wholesale Sales & Ancillary Services segment.

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

September 30,

2021

 

 

 

September 30,

2020

 

Revenue by geographic region(1)

 

 

 

 

 

 

 

 

 

United States

 

$

1,173,124

 

 

 

$

1,164,691

 

Europe

 

 

494,152

 

 

 

 

404,691

 

North America, excluding United States

 

 

329,685

 

 

 

 

266,748

 

Asia Pacific

 

 

14,244

 

 

 

 

15,165

 

Africa

 

 

17

 

 

 

 

-

 

Australia

 

 

2,749

 

 

 

 

14,821

 

 

 

$

2,013,971

 

 

 

$

1,866,116

 

 

(1)

Presentation of amounts realigned based on current accounting policy that defines geographic area based on the delivery or settlement location.   The presentation change had no impact on the segments' operations or the Company's condensed consolidated results.

Gross Profit and Gross Margin Percentage

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

September 30,

2021

 

 

 

September 30,

2020

 

Gross profit by segment(1)

 

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

$

28,533

 

 

 

$

30,581

 

Eliminations and adjustments

 

 

(2,984

)

 

 

 

41

 

Wholesale Sales & Ancillary Services, net of eliminations and adjustments

 

 

25,549

 

 

 

 

30,622

 

Direct-to-Consumer, net of eliminations

 

 

30,460

 

 

 

 

5,523

 

 

 

$

56,009

 

 

 

$

36,145

 

Gross margin percentage by segment

 

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

 

1.470

%

 

 

 

1.667

%

Wholesale Sales & Ancillary Services, net of eliminations and adjustments

 

 

1.703

%

 

 

 

1.688

%

Direct-to-Consumer

 

 

5.927

%

 

 

 

10.538

%

Weighted average gross margin percentage

 

 

2.781

%

 

 

 

1.937

%

 

39

 

(1)

The Secured Lending segment earns interest income from its lending activity and earns no gross profit from the sales of precious metals. Therefore, no amounts are shown for the Secured Lending segment in the above table.

 

Operating income and (expenses)

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

September 30,

2021

 

 

 

September 30,

2020

 

Operating income (expense) by segment

 

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

$

(7,018

)

 

 

$

(4,047

)

Eliminations

 

 

(60

)

 

 

 

(41

)

Wholesale Sales & Ancillary Services, net of eliminations

 

$

(7,078

)

 

 

$

(4,088

)

 

 

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services, net of eliminations

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

$

(8,682

)

 

 

$

(7,402

)

Depreciation and amortization expense

 

 

(232

)

 

 

 

(205

)

Interest income

 

 

3,009

 

 

 

 

2,438

 

Interest expense

 

 

(2,438

)

 

 

 

(2,948

)

Earnings from equity method investments

 

 

1,489

 

 

 

 

4,126

 

Unrealized (losses) gains on foreign exchange

 

 

(224

)

 

 

 

(97

)

 

 

$

(7,078

)

 

 

$

(4,088

)

Direct-to-Consumer

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

$

(7,539

)

 

 

$

(1,695

)

Depreciation and amortization expense

 

 

(7,951

)

 

 

 

(208

)

Interest expense

 

 

(823

)

 

 

 

-

 

 

 

$

(16,313

)

 

 

$

(1,903

)

Secured Lending

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

$

(456

)

 

 

$

(408

)

Depreciation and amortization expense

 

 

(88

)

 

 

 

(88

)

Interest income

 

 

2,522

 

 

 

 

1,545

 

Interest expense

 

 

(2,212

)

 

 

 

(1,345

)

Other income, net

 

 

409

 

 

 

 

359

 

 

 

$

175

 

 

 

$

63

 

 

Net income (loss) before provision for income taxes

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

September 30,

2021

 

 

 

September 30,

2020

 

Net income before provision for income taxes by segment

 

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

$

18,471

 

 

 

$

26,534

 

Direct-to-Consumer

 

 

14,147

 

 

 

 

3,620

 

Secured Lending

 

 

175

 

 

 

 

63

 

 

 

$

32,793

 

 

 

$

30,217

 

Advertising expense

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

September 30,

2021

 

 

 

September 30,

2020

 

Advertising expense by segment

 

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

$

(103

)

 

 

$

(65

)

Direct-to-Consumer

 

 

(2,616

)

 

 

 

(610

)

Secured Lending

 

 

(54

)

 

 

 

(25

)

 

 

$

(2,773

)

 

 

$

(700

)

 

40

 

Precious metals held under financing arrangements

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

September 30,

2021

 

 

 

June 30,

2021

 

Precious metals held under financing arrangements by segment

 

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

$

112,770

 

 

 

$

130,766

 

Secured Lending

 

 

17,848

 

 

 

 

23,976

 

 

 

$

130,618

 

 

 

$

154,742

 

 

Inventories

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

September 30,

2021

 

 

 

June 30,

2021

 

Inventories by segment

 

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

$

476,407

 

 

 

$

402,418

 

Direct-to-Consumer

 

 

86,623

 

 

 

 

53,069

 

Secured Lending

 

 

2,675

 

 

 

 

2,532

 

 

 

$

565,705

 

 

 

$

458,019

 

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

September 30,

2021

 

 

 

June 30,

2021

 

Inventories by geographic region

 

 

 

 

 

 

 

 

 

United States

 

$

535,180

 

 

 

$

431,732

 

Europe

 

 

11,590

 

 

 

 

9,451

 

North America, excluding United States

 

 

18,645

 

 

 

 

16,633

 

Asia

 

 

290

 

 

 

 

203

 

 

 

$

565,705

 

 

 

$

458,019

 

 

Total Assets

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

September 30,

2021

 

 

 

June 30,

2021

 

Assets by segment

 

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

$

859,443

 

 

 

$

874,152

 

Eliminations

 

 

(84,882

)

 

 

 

(163,850

)

Wholesale Sales & Ancillary Services, net of eliminations

 

 

774,561

 

 

 

 

710,302

 

Direct-to-Consumer

 

 

332,569

 

 

 

 

335,829

 

Secured Lending

 

 

140,152

 

 

 

 

145,450

 

 

 

$

1,247,282

 

 

 

$

1,191,581

 

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

September 30,

2021

 

 

 

June 30,

2021

 

Assets by geographic region

 

 

 

 

 

 

 

 

 

United States

 

$

1,215,277

 

 

 

$

1,162,195

 

Europe

 

 

13,070

 

 

 

 

12,550

 

North America, excluding United States

 

 

18,645

 

 

 

 

16,633

 

Asia

 

 

290

 

 

 

 

203

 

 

 

$

1,247,282

 

 

 

$

1,191,581

 

41

 

Long-term Assets

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

September 30,

2021

 

 

 

June 30,

2021

 

Long-term assets by segment

 

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

$

47,360

 

 

 

$

36,174

 

Direct-to-Consumer

 

 

182,402

 

 

 

 

188,208

 

Secured Lending

 

 

2,884

 

 

 

 

2,972

 

 

 

$

232,646

 

 

 

$

227,354

 

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

September 30,

2021

 

 

 

June 30,

2021

 

Long-term assets by geographic region

 

 

 

 

 

 

 

 

 

United States

 

$

232,644

 

 

 

$

227,352

 

Europe

 

 

2

 

 

 

 

2

 

 

 

$

232,646

 

 

 

$

227,354

 

 

Capital Expenditures for Property, Plant, and Equipment

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

September 30,

2021

 

 

 

September 30,

2020

 

Capital expenditures on property, plant, and equipment by segment

 

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

$

337

 

 

 

$

473

 

Direct-to-Consumer

 

 

372

 

 

 

 

3

 

 

 

$

709

 

 

 

$

476

 

Goodwill and Intangible Assets

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

September 30,

2021

 

 

 

June 30,

2021

 

Goodwill by segment

 

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

$

8,881

 

 

 

$

8,881

 

Direct-to-Consumer(1)

 

 

92,062

 

 

 

 

92,062

 

 

 

$

100,943

 

 

 

$

100,943

 

 

(1)

Direct-to-Consumer segment’s goodwill balance is net of $1.4 million accumulated impairment losses.

 

Intangible assets

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

September 30,

2021

 

 

 

June 30,

2021

 

Intangibles by segment

 

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

$

2,812

 

 

 

$

2,831

 

Direct-to-Consumer(1)

 

 

82,949

 

 

 

 

90,802

 

 

 

$

85,761

 

 

 

$

93,633

 

 

(1)

Direct-to-Consumer segment’s intangibles balance is net of $1.3 million accumulated impairment losses.

 

 

19. SUBSEQUENT EVENTS

None.

 

42

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  

CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Quarterly Report on Form 10-Q ("Form 10-Q") contains statements that are considered forward-looking statements. Forward-looking statements give the Company's current expectations and forecasts of future events. All statements other than statements of current or historical fact contained in this Quarterly Report, including statements regarding the Company's future financial position, business strategy, budgets, projected costs and plans, and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “plan,” and similar expressions, as they relate to the Company, are intended to identify forward-looking statements. These statements are based on the Company's current plans, and the Company's actual future activities and results of operations may be materially different from those set forth in the forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made. Any or all of the forward-looking statements in this Quarterly Report may turn out to be inaccurate. The Company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy, and financial needs. The forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and assumptions. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events occurring after the date hereof. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements contained in this Form 10-Q.

In addition to the risks and uncertainties that may ordinarily influence our business, the Company remains exposed to the effects of the COVID-19 pandemic.  The pandemic has caused significant disruption in the financial markets both globally and in the United States. The resulting macroeconomic events have contributed to an increase in the business conducted by the Company, but also pose certain risks and uncertainties for the Company. The Company does not know how long the COVID-19 pandemic will continue, the extent to which the effects that the Company has experienced from the pandemic thus far will persist, or whether other effects on the Company and its businesses will materialize in the short or long term.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and notes contained elsewhere in this Form 10-Q. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this Quarterly Report, particularly in “Risk Factors.”

INTRODUCTION

Management's discussion and analysis of financial condition and results of operations is provided as a supplement to the accompanying condensed consolidated financial statements and related notes to aid in the understanding of our results of operations and financial condition. Our discussion is organized as follows:

 

•

Executive overview. This section provides a general description of our business, as well as significant transactions and events that we believe are important in understanding the results of operations.

 

•

Results of operations.  This section provides an analysis of our results of operations presented in the accompanying condensed consolidated statements of income by comparing the results for the respective periods presented. Included in our analysis is a discussion of six performance metrics: (i) ounces of gold and silver sold, (ii) Wholesale Sales ticket volume, (iii) Direct-to-Consumer ticket volume, (iv) number of Direct-to-Consumer customers, (v) inventory turnover ratio, and (vi) number of secured loans at period-end.

 

•

Segment results of operations. This section provides an analysis of our results of operations presented for our three segments:

 

o

Wholesale Sales & Ancillary Services

 

o

Direct-to-Consumer, and

 

o

Secured Lending

for the comparable periods.

 

•

Non GAAP Measures.  In addition to certain key operational metrics to assess the performance of our business, management uses the financial performance measure “adjusted net income before provision for taxes” that is not prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”)

43

 

•

Liquidity and financial condition. This section provides an analysis of our cash flows, as well as a discussion of our outstanding debt as of September 30, 2021, sources of liquidity and the amount of financial capacity available to fund our future commitments and other financing arrangements.

 

•

Critical accounting policies. This section discusses critical accounting policies that are considered both important to our financial condition and results of operations and require management to make significant judgment and estimates. All of our significant accounting policies, including the critical accounting policies are also summarized in Note 2 to the Company’s condensed consolidated financial statements.

 

•

Recent accounting pronouncements. This section discusses new accounting pronouncements, dates of implementation and their expected impact on our accompanying condensed consolidated financial statements.

EXECUTIVE OVERVIEW

Our Business

We conduct our operations in three reportable segments: (i) Wholesale Sales & Ancillary Services (formerly known as Wholesale Trading & Ancillary Services), (ii) Direct-to-Consumer (formerly known as Direct Sales) and (iii) Secured Lending.

Wholesale Sales & Ancillary Services Segment

The Company operates its Wholesale Sales & Ancillary Services segment through A-Mark Precious Metals, Inc., and its wholly-owned subsidiaries, A-Mark Trading AG (“AMTAG”), Transcontinental Depository Services, LLC ("TDS" or “Storage”), A-M Global Logistics, LLC (“AMGL” or "Logistics"), and AM&ST Associates, LLC ("AMST" or the “SilverTowne Mint").

The Wholesale Sales & Ancillary Services segment operates as a full-service precious metals company. We offer gold, silver, platinum, and palladium in the form of bars, plates, powder, wafers, grain, ingots, and coins. Our Industrial unit services manufacturers and fabricators of products utilizing or incorporating precious metals. Our Coin and Bar unit deals in over 1,000 coin and bar products in a variety of weights, shapes, and sizes for distribution to dealers and other qualified purchasers. We have a marketing support office in Vienna, Austria, and a trading center in El Segundo, California.  The trading center, for buying and selling precious metals, is available to receive orders 24 hours every day, even when many major world commodity markets are closed. In addition to Wholesale Sales activity, A-Mark offers its customers a variety of ancillary services, including financing, storage, consignment, logistics, and various customized financial programs.  As a U.S. Mint-authorized purchaser of gold, silver, platinum, and palladium coins, A-Mark purchases product directly from the U.S. Mint and other sovereign mints for sale to its customers.

Through its wholly-owned subsidiary AMTAG, the Company promotes A-Mark's products and services to the international market. Through our wholly-owned subsidiary TDS, we offer a variety of managed storage options for precious metals products to financial institutions, dealers, investors, and collectors around the world.

The Company's wholly-owned subsidiary AMGL is based in Las Vegas, Nevada, and provides our customers an array of complementary services, including receiving, handling, inventorying, processing, packing, and shipping of precious metals and custom coins on a secure basis.

Through its wholly-owned subsidiary AMST, the Company designs and produces minted silver products. Our SilverTowne Mint operations allow us to provide greater product selection to our customers and greater pricing stability within the supply chain, as well as to gain increased access to silver during volatile market environments, which have historically created higher demand for precious metals products.

Direct-to-Consumer

The Company operates its Direct-to-Consumer segment through its wholly-owned subsidiaries JM Bullion, Inc. (“JMB”) and Goldline, Inc. (“Goldline”). JMB has four wholly-owned subsidiaries: Gold Price Group, Inc. (“GPG”), Silver.com, Inc. (“Silver.com”), Goldline Metal Buying Corp. (“GMBC”), and Provident Metals Corp. (“PMC”).  Goldline, Inc. owns 100% of AMIP, LLC ("AMIP"), and has a 50% ownership interest in Precious Metals Purchasing Partners, LLC ("PMPP".)  As the context requires, references in this 10-Q to “JMB” may include GPG, Silver.com, GMBC and PMC, and references to “Goldline” may include AMIP and PMPP.

JMB is a leading e-commerce retailer providing access to a broad array of gold, silver, copper, platinum, and palladium products through its websites and marketplaces. JMB operates five separately branded, company-owned websites targeting specific niches within the precious metals retail market, including JMBullion.com, ProvidentMetals.com, Silver.com, GoldPrice.org, and SilverPrice.org.

The Company acquired the 79.5% interest in JMB that it did not previously own in March 2021.  With this acquisition, we substantially expanded our e-commerce channel for precious coin and metals sales and increased the diversification of our business between wholesale and retail distribution.

44

The Company acquired Goldline in August 2017 through an asset purchase transaction with Goldline, LLC, which had been in operation since 1960. Goldline is a direct retailer of precious metals to the investor community, and markets its precious metal products on television, radio, and the internet, as well as through customer service outreach. AMIP manages Goldline’s intellectual property.

PMPP was formed in in fiscal 2019 pursuant to terms of a joint venture agreement, for the purpose of purchasing precious metals from the partners' retail customers, and then reselling the acquired products back to affiliates of the partners.  PMPP commenced operations in fiscal 2020.

Secured Lending

The Company operates its Secured Lending segment through its wholly-owned subsidiary Collateral Finance Corporation, LLC. ("CFC").  CFC has two wholly-owned subsidiaries: AM Capital Funding, LLC (“AMCF”), and CFC Alternative Investments (“CAI”).

CFC is a California licensed finance lender that originates and acquires commercial loans secured by bullion and numismatic coins. CFC's customers include coin and precious metal dealers, investors, and collectors. As of September 30, 2021, CFC and AMCF had, in the aggregate, approximately $110.3 million in secured loans outstanding, of which approximately 70.6% were acquired from third parties (some of which may be customers of A-Mark) and approximately 29.4% were originated by CFC.

AMCF was formed for the purpose of securitizing eligible secured loans of CFC.  AMCF issued, administers, and owns Secured Senior Term Notes: Series 2018-1, Class A, with an aggregate principal amount of $72.0 million and Secured Subordinated Term Notes, Series 2018-1, Class B in the aggregate principal amount of $28.0 million.  The Class A Notes bear interest at a rate of 4.98%, and the Class B Notes bear interest at a rate of 5.98% (collectively referred to as the "Notes").  The Notes have a maturity date of December 15, 2023. See Note 14 to the Company’s condensed consolidated financial statements for additional information

CAI is a holding company that has an equity method interest in Collectible Card Partners, LLC (“CCP”). The purpose of CCP is to provide capital to fund commercial loans secured by graded sport cards and sports memorabilia.  CCP commenced operations in fiscal 2022.

Our Strategy

The Company was formed in 1965 and has grown into a significant participant in the bullion and coin markets, with approximately $7.6 billion in revenues for fiscal year 2021. Our strategy continues to focus on growth, including the volume of our business, our geographic presence, and the scope of complementary products, services, and technological tools that we offer to our customers.  

We intend to continue to grow by leveraging off the strengths of our existing integrated operations:

 

•

our expertise in e-commerce and marketing;

 

•

our expansive retail distribution network;

 

•

the depth of our customer relationships;

 

•

our access to market makers, suppliers, and sovereign and private mints;

 

•

our trading systems in the U.S. and Europe;

 

•

our network of precious metals dealers;

 

•

our depository relationships around the world;

 

•

our knowledge of secured lending;

 

•

our design and production of minted silver products;

 

•

our ability to obtain more favorable pricing and financing terms due to our size;

 

•

our distribution, storage and logistics capabilities; and

 

•

the quality and experience of our management team.

Our Customers

Our customers include financial institutions, bullion retailers, industrial manufacturers and fabricators, sovereign mints, refiners, coin and metal dealers, investors, collectors, and e-commerce and other retail customers. The Company makes a two-way market in its wholesale operations, which results in many customers also operating as our suppliers in that segment.  This diverse base of wholesale customers purchases a variety of products from the Company in a multitude of grades, primarily in the form of coins and bars. Our Direct-to-Consumer segment sells to (and, through JMB and PMPP, buys from) retail customers, with JMB focusing on e-commerce

45

operations and Goldline marketing through various traditional channels to the investor community.  The Direct-to-Consumer segment offers these customers a variety of gold, silver, copper, platinum, and palladium products.

Factors Affecting Revenues, Gross Profit, Interest Income, and Interest Expense

Set forth below are the key factors affecting the Company’s revenues, gross profit, interest income, and interest expense. These factors can result from both the Company’s ongoing business activities as well as from Company acquisitions. For the three months ended September 30, 2021, the Company’s results were significantly impacted by the acquisition of JMB in March 2021.

Revenues.  The Company enters into transactions to sell and deliver gold, silver, platinum, palladium, and rhodium to industrial and commercial users, coin and bullion dealers, mints, and financial institutions. The metals are investment or industrial grade and are sold in a variety of shapes and sizes.

The Company also sells and delivers gold, silver, platinum, palladium, and copper products directly to customers and the investor community through its Direct-to Consumer segment.  Customers may place orders over the phone or online at one of the Company’s websites.

The Company also sells precious metals on forward contracts at a fixed price based on current prevailing precious metal spot prices with a certain delivery date in the future (up to six months from inception date of the forward contract).  The Company also uses other derivative products (primarily futures contracts) or combinations thereof to hedge commodity risks. We enter into these forward and future contracts as part of our hedging strategy to mitigate our price risk of holding inventory; they are not entered into for speculative purposes.

Forward sales contracts by their nature are required to be included in revenues, unlike futures contracts which do not impact the Company’s revenue. The decision to use a forward contract versus another derivative type of product (e.g., a futures contract) for hedging purposes is based on the economics of the transaction.  Since the volume of hedging can be significant, the movement in and out of forwards can substantially impact revenues, either positively or negatively, from period to period.  For this reason, the Company believes ounces sold (excluding ounces sold on forward sales contracts) is a meaningful metric to assess our top line performance.

In addition, the Company earns revenue by providing storage solutions for precious metals and numismatic coins for financial institutions, dealers, investors and collectors worldwide and by providing storage and order-fulfillment services to our retail customers.  The Company also earns revenue from advertisements placed on our Direct-to-Consumer websites. These revenue streams represent less than 1% of the Company’s consolidated revenues.  

The Company operates in a high volume/low margin industry.  Revenues are impacted by three primary factors: product volume, market prices, and market volatility. A material changes in any one or more of these factors may result in a significant change in the Company’s revenues.  A significant increase or decrease in revenues can occur simply based on changes in the underlying commodity prices and may not be reflective of an increase or decrease in the volume of products sold.

Gross Profit.  Gross profit is the difference between our revenues and the cost of our products sold.  Since we quote prices based on the current commodity market prices for precious metals, we enter into a combination of forward and futures contracts to affect a hedge position equal to the underlying precious metal commodity value, which substantially represents inventory subject to price risk.  We enter into these derivative transactions solely for the purpose of hedging our inventory, and not for speculative purposes.  Our gross profit includes the gains and losses resulting from these derivative instruments.  However, the gains and losses on the derivative instruments are substantially offset by the gains and losses on the corresponding changes in the market value of our precious metals inventory.  As a result, our results of operations generally are not materially impacted by changes in commodity prices.

Volatility also affects our gross profit.  Greater volatility typically causes the premium spreads to widen resulting in an increase in the gross profit. Product supply constraints during extended periods of higher volatility have historically resulted in a heightening of wider premium spreads resulting in further improvement in the gross profit.

Interest Income.  The Company enters into secured loans and secured financing structures with its customers under which it charges interest. CFC acquires loan portfolios and originates loans that are secured by precious metal bullion and numismatic material owned by the borrowers and held by the Company for the term of the loan.  Additionally, AMCF acquires certain loans from CFC that are secured by precious metal bullion to meet the collateral requirements of the Notes.  Also, the Company offers a number of secured financing options to its customers to finance their precious metals purchases including consignments and other structured inventory finance products whereby the Company earns a fee based on the underlying value of the precious metal ("repurchase arrangements with customers").

Interest Expense.  The Company incurs interest expense associated with its: lines of credit, notes, product financing agreements for the transfer and subsequent re-acquisition of gold, silver, and platinum at a fixed price with a third-party finance company ("product financing arrangements"), and short-term precious metal borrowing arrangements with our suppliers ("liabilities on borrowed metals").

46

Performance Metrics

In addition to financial statement indicators, management also utilizes certain key operational metrics to assess the performance of our business.

Gold and Silver Ounces Sold and Delivered to Customers.  We look at the number of ounces of gold and silver sold and delivered to our customers (excluding ounces recorded on forward contracts).  These metrics reflect our business volume without regard to changes in commodity pricing, which also impacts revenue, but can mask actual business trends.

The primary purpose of entering into forward sales transactions is to hedge commodity price risk. Although the revenues realized from these forward sales transactions are often significant, they generally have negligible impact to gross margins.  As a result, the Company excludes the ounces recorded on forward contracts from its performance metrics, as the Company does not enter into forward sales transactions for speculative purposes.

Wholesale Sales Ticket Volume.  Another measure of our business that is unaffected by changes in commodity pricing, is ticket volume (or number of orders processed). Ticket volume for the Wholesale Sales & Ancillary Services segment measures the total number of wholesale orders processed during the period.  In periods of higher volatility, there is generally increased trading in the commodity markets, causing increased demand for our products, resulting in higher business volume. During periods of heightened demand order size per ticket may increase.

Direct-to-Consumer Ticket Volume.  Ticket volume for the Direct-to-Consumer segment measures the total number of retail orders processed during the period. In periods of higher volatility, there is generally increased consumer demand for our products, resulting in higher business volume.

Direct-to-Consumer Customers.  We are focused on attracting new customers and retaining existing customers to drive revenue growth.  We use the following three metrics as revenue growth indicators when assessing our customer base:

 

•

New Direct-to-Consumer Customers means the number of customers that have registered or setup a new account or made a purchase for the first time.

 

•

Active Direct-to-Consumer Customers means the number of customers that have made a purchase during the period.

 

•

Total Direct-to-Consumer Customers means the aggregate number of customers that have registered or set up an account or have made a purchase in the past.

Inventory Turnover.  Inventory turnover is another performance measure on which we are focused and is calculated as the cost of sales divided by the average inventory during the relevant period.  Inventory turnover is a measure of how quickly inventory has moved during the period.  A higher inventory turnover ratio, which we typically experience during periods of higher volatility when trading is more robust, typically reflects a more efficient use of our capital.

The period of time that inventory is held by the Company varies depending upon the nature of our inventory commitments with customers and suppliers.  (See Note 6 to the Company’s condensed consolidated financial statements for a description of our classifications of inventory by type.)  When management analyzes inventory turnover on a period over period basis, consideration is given to each inventory type and its corresponding impact on the inventory turnover calculation.  For example:

 

•

The Company enters into various structured borrowing arrangements that commit the Company's inventory (such as product financing arrangements or liabilities on borrowed metals) for an unspecified period of time.  While the Company is able to obtain access to this inventory on demand, this type of inventory tends not to turn over as quickly as other types of inventory.

 

•

The Company enters into repurchase arrangements with customers under which A-Mark holds precious metals which are subject to repurchase for an unspecified period of time. While the Company has legal title to this inventory, the Company is required to hold this inventory (or like-kind inventory) for the customer until the arrangement is terminated or the material is repurchased by the customer.  As a result, this type of inventory tends not to turn over as quickly as other types of inventory.

Additionally, our inventory turnover ratio can be affected by hedging activity, as the period over period change of the inventory turnover ratio may be significantly impacted by a period over period change in hedging volume.  For example, if trading activity were to remain constant over two periods, but there were significantly higher forward sales in the current period compared to a prior period, the calculated inventory turnover ratio would increase notwithstanding the constancy of the trading volume.

Number of Secured Loans.  Finally, as a measure of the size of our Secured Lending segment, we look at the number of outstanding secured loans to customers that are primarily collateralized by precious metals at the end of each quarter. Typically, the number of loans increases during periods of increasing precious metal pricing and decreases during periods of declining precious metal prices.

The Company calculates a loan-to-value ("LTV") ratio for each loan as the principal amount of the loan divided by the liquidation value of the collateral, which is based on daily spot market prices of precious metal bullion. When the market price of the pledged collateral decreases and thereby increases the LTV ratio of a loan above a prescribed maximum ratio, usually 85%, the Company has

47

the option to make a margin call on the loan.  As a result, a decline of precious metal market prices may cause a decrease in the number of loans outstanding in a period.

Non-GAAP Financial Measures

 

In addition to certain key operational metrics to assess the performance of our business, management uses financial performance measures that are not prepared in accordance with GAAP. One of these non-GAAP measures is “Adjusted net income before provision for income taxes”. We believe this non-GAAP measure provides useful information that can be used to evaluate our performance. Non-GAAP measures do not have standardized definitions and should not be relied upon in isolation or as a substitute for measures prepared in accordance with GAAP.  For a reconciliation of this non-GAAP measure to the amounts included in our Statements of Income for the three months ended September 30, 2021 and 2020, and certain limitations inherent in such measures, refer to the “Non-GAAP Measures” section below.

COVID-19

The COVID-19 outbreak has caused significant disruption in the financial markets both globally and in the United States. The resulting macroeconomic events contributed to an increase in the business conducted by the Company, but also pose certain risks and uncertainties for the Company. It is challenging to predict how long the COVID-19 pandemic will continue, the extent to which the effects that the Company has experienced from the pandemic thus far will persist, or whether other effects on the Company and its businesses will materialize in the short or long term.

Macroeconomic events have positively affected the Company’s trading revenues and gross profit as the volatility of the price of precious metals and numismatics resulted in a material increase in the spread between bid and ask prices on these products. We also experienced substantially increased demand for products in each of our coin and bar, industrial and retail businesses. We attribute this to certain customers, particularly in Goldline and our recently acquired JMB retail units, seeking to assure a supply of precious metals necessary for the operation of their businesses, and other customers’ seeking the safety of investments in precious metals.  In response to the heightened demand, in certain cases prices for the products we sell have also risen.

Fiscal Year

Our fiscal year end is June 30 each year.  Unless otherwise stated, references to years in this report relate to fiscal years rather than to calendar years.

 

 

48

 

RESULTS OF OPERATIONS

Overview of Results of Operations for the Three Months Ended September 30, 2021 and 2020

Consolidated Results of Operations

The operating results of our business for the three months ended September 30, 2021 and 2020 are as follows:

 

in thousands, except per share data and performance metrics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

2021

 

 

2020

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Revenues

 

$

2,013,971

 

 

 

100.000

%

 

$

1,866,116

 

 

 

100.000

%

 

$

147,855

 

 

 

7.9

%

Gross profit

 

 

56,009

 

 

 

2.781

%

 

 

36,145

 

 

 

1.937

%

 

$

19,864

 

 

 

55.0

%

Selling, general, and administrative expenses

 

 

(16,677

)

 

 

(0.828

)%

 

 

(9,505

)

 

 

(0.509

)%

 

$

7,172

 

 

 

75.5

%

Depreciation and amortization expense

 

 

(8,271

)

 

 

(0.411

)%

 

 

(501

)

 

 

(0.027

)%

 

$

7,770

 

 

 

1,550.9

%

Interest income

 

 

5,531

 

 

 

0.275

%

 

 

3,983

 

 

 

0.213

%

 

$

1,548

 

 

 

38.9

%

Interest expense

 

 

(5,473

)

 

 

(0.272

)%

 

 

(4,293

)

 

 

(0.230

)%

 

$

1,180

 

 

 

27.5

%

Earnings from equity method investments

 

 

1,489

 

 

 

0.074

%

 

 

4,126

 

 

 

0.221

%

 

$

(2,637

)

 

 

(63.9

%)

Other income, net

 

 

409

 

 

 

0.020

%

 

 

359

 

 

 

0.019

%

 

$

50

 

 

 

13.9

%

Unrealized losses on foreign exchange

 

 

(224

)

 

 

(0.011

)%

 

 

(97

)

 

 

(0.005

)%

 

$

127

 

 

 

130.9

%

Net income before provision for income taxes

 

 

32,793

 

 

 

1.628

%

 

 

30,217

 

 

 

1.619

%

 

$

2,576

 

 

 

8.5

%

Income tax expense

 

 

(6,669

)

 

 

(0.331

)%

 

 

(6,511

)

 

 

(0.349

)%

 

$

158

 

 

 

2.4

%

Net income

 

 

26,124

 

 

 

1.297

%

 

 

23,706

 

 

 

1.270

%

 

$

2,418

 

 

 

10.2

%

Net income attributable to noncontrolling interests

 

 

100

 

 

 

0.005

%

 

 

623

 

 

 

0.033

%

 

$

(523

)

 

 

(83.9

%)

Net income attributable to the Company

 

$

26,024

 

 

 

1.292

%

 

$

23,083

 

 

 

1.237

%

 

$

2,941

 

 

 

12.7

%

Basic and diluted net income per share attributable to

   A-Mark Precious  Metals, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Share Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

2.31

 

 

 

 

 

 

$

3.28

 

 

 

 

 

 

$

(0.97

)

 

 

(29.6

%)

Diluted

 

$

2.17

 

 

 

 

 

 

$

3.09

 

 

 

 

 

 

$

(0.92

)

 

 

(29.8

%)

Performance Metrics:(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gold ounces sold(2)

 

 

669,000

 

 

 

 

 

 

 

721,000

 

 

 

 

 

 

 

(52,000

)

 

 

(7.2

%)

Silver ounces sold(3)

 

 

28,127,000

 

 

 

 

 

 

 

24,248,000

 

 

 

 

 

 

 

3,879,000

 

 

 

16.0

%

Inventory turnover ratio(4)

 

 

3.8

 

 

 

 

 

 

 

5.0

 

 

 

 

 

 

 

(1.2

)

 

 

(24.0

%)

Number of secured loans at period end(5)

 

 

2,074

 

 

 

 

 

 

 

1,125

 

 

 

 

 

 

 

949

 

 

 

84.4

%

 

(1)

See "Results of Segments" for a description of additional metrics not listed above.

(2)

Gold ounces sold represents the ounces of gold product sold and delivered to the customer during the period, excluding ounces of gold recorded on forward contracts.

(3)

Silver ounces sold represents the ounces of silver product sold and delivered to the customer during the period, excluding ounces of silver recorded on forward contracts.

(4)

Inventory turnover ratio is the cost of sales divided by average inventory for the period presented above.  This calculation excludes precious metals held under financing arrangements, which are not classified as inventory on the condensed consolidated balance sheets.

(5)

Number of outstanding secured loans to customers that are primarily collateralized by precious metals at the end of the period.

 

49

 

Revenues

 

in thousands, except performance metrics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

2021

 

 

2020

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Revenues

 

$

2,013,971

 

 

 

100.000

%

 

$

1,866,116

 

 

 

100.000

%

 

$

147,855

 

 

 

7.9

%

Performance Metrics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gold ounces sold

 

 

669,000

 

 

 

 

 

 

 

721,000

 

 

 

 

 

 

 

(52,000

)

 

 

(7.2

%)

Silver ounces sold

 

 

28,127,000

 

 

 

 

 

 

 

24,248,000

 

 

 

 

 

 

 

3,879,000

 

 

 

16.0

%

 

Revenues for the three months ended September 30, 2021 increased $147.9 million, or 7.9% to $2.014 billion from $1.866 billion in 2020. Excluding an increase of $132.5 million of forward sales, our revenues increased $15.4 million, which was due to an increase in silver ounces sold at higher selling prices, partially offset by lower gold ounces sold at lower selling prices.

Gold ounces sold for the three months ended September 30, 2021 decreased 52,000 ounces, or 7.2%, to 669,000 ounces from 721,000 ounces in 2020.  Silver ounces sold for the three months ended September 30, 2021 increased 3,879,000 ounces, or 16.0%, to 28,127,000 ounces from 24,248,000 ounces in 2020. On average, the selling prices for gold decreased by 3.4% and selling prices for silver increased by 13.8% during the three months ended September 30, 2021 as compared to the prior year period.

JMB’s revenue activity represented 23.5% of the Company’s consolidated revenue for the three months ended September 30, 2021. JMB’s gold and silver ounces sold represented 20.1% and 22.4%, respectively, of the Company’s consolidated total of gold and silver ounces sold for the three months ended September 30, 2021.

A key factor that contributed to the increase in demand for silver was the volatility in precious metal prices caused by macroeconomic and other events.  A combination of price volatility, increased demand, and supply constraints led to a significant expansion in premium spreads in the precious metals market, having an onset during the second half of fiscal year 2020 and sustaining through the current fiscal year. We are uncertain of the duration of these conditions.

Gross Profit

 

in thousands, except performance metric

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

2021

 

 

2020

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Gross profit

 

$

56,009

 

 

 

2.781

%

 

$

36,145

 

 

 

1.937

%

 

$

19,864

 

 

 

55.0

%

Performance Metric

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventory turnover ratio

 

 

3.8

 

 

 

 

 

 

 

5.0

 

 

 

 

 

 

 

(1.2

)

 

 

(24.0

%)

 

Gross profit for the three months ended September 30, 2021 increased by $19.9 million, or 55.0%, to $56.0 million from $36.1 million in 2020.  The overall gross profit increase was due to higher gross profits earned from the Direct-to-Consumer segment.

The Company’s overall gross margin percentage for the three months ended September 30, 2021 increased by 84.4 basis points to 2.781% from 1.937% in 2020.  The increase in gross margin percentage was mainly attributable to JMB’s retail market activity, which represented 44.1% of the Company’s consolidated gross profit for the three months ended September 30, 2021.

Our inventory turnover rate for the three months ended September 30, 2021 decreased by 24.0%, to 3.8 from 5.0 in 2020.  The decrease in our inventory turnover ratio was primarily due to higher average inventory balances related to product financing arrangements, which is a type of inventory that is typically held for longer periods, partially offset by higher volume of ounces sold on forward contracts.

50

Selling, General and Administrative Expense

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

2021

 

 

2020

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Selling, general, and administrative expenses

 

$

(16,677

)

 

 

(0.828

)%

 

$

(9,505

)

 

 

(0.509

)%

 

$

7,172

 

 

 

75.5

%

 

Selling, general and administrative expenses for the three months ended September 30, 2021 increased $7.2 million, or 75.5%, to $16.7 million from $9.5 million in 2020. The change was primarily due to: (i) $6.0 million of expenses incurred by JMB (ii) $0.7 million of consulting and professional fees, (iii) higher insurance costs of $0.4 million, and (iv) increased compensation expense (including performance-based accruals) of $0.2 million.

JMB’s selling, general, and administrative expenses represented 35.8% of the Company’s consolidated selling, general, and administrative expenses for the three months ended September 30, 2021.

 

Depreciation and Amortization Expense

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

2021

 

 

2020

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Depreciation and amortization expense

 

$

(8,271

)

 

 

(0.411

)%

 

$

(501

)

 

 

(0.027

)%

 

$

7,770

 

 

 

1,550.9

%

 

Depreciation and amortization expense for the three months ended September 30, 2021 increased $7.8 million, or 1,550.9%, to $8.3 million from $0.5 million in 2020. The change was primarily due to $7.7 million of JMB’s intangible asset amortization expense.

JMB’s depreciation and amortization expense represented 93.9% of the Company’s consolidated depreciation and amortization expense for the three months ended September 30, 2021.

Interest Income

 

in thousands, except performance metric

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

2021

 

 

2020

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Interest income

 

$

5,531

 

 

 

0.275

%

 

$

3,983

 

 

 

0.213

%

 

$

1,548

 

 

 

38.9

%

Performance Metric

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of secured loans at period-end

 

 

2,074

 

 

 

 

 

 

 

1,125

 

 

 

 

 

 

 

949

 

 

 

84.4

%

 

Interest income for the three months ended September 30, 2021 increased $1.5 million, or 38.9%, to $5.5 million from $4.0 million in 2020.  The aggregate increase in interest income was primarily due to higher interest income earned by our Secured Lending Segment, and higher other finance product income.

The interest income from our Secured Lending segment increased by $1.0 million or by 63.2% compared with the prior year.  The increase in interest income earned from the segment’s secured loan portfolio was primarily due to higher average monthly loan balances during the current period as compared to the average monthly loan balances for the prior year period. The number of secured loans outstanding increased by 84.4% to 2,074 as of September 30, 2021, from 1,125 as of September 30, 2020.

The interest income from our other finance product income increased by $0.5 million in comparison to the same year-ago period.

Interest Expense

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

2021

 

 

2020

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Interest expense

 

$

(5,473

)

 

 

(0.272

)%

 

$

(4,293

)

 

 

(0.230

)%

 

$

1,180

 

 

 

27.5

%

 

51

 

Interest expense for the three months ended September 30, 2021 increased $1.2 million, or 27.5% to $5.5 million from $4.3 million in 2020.  The increase in interest expense was primarily driven by each of the following components: (i) $0.7 million related to product financing arrangements, (ii) $0.4 million associated with our Trading Credit Facility and Notes Payable (including amortization of debt issuance costs), (iii) $0.2 million of loan servicing fees, offset by a decrease of (iv) $0.2 million in interest and fees associated with liabilities on borrowed metals.

Earnings from equity method investments

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

2021

 

 

2020

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Earnings from equity method investments

 

$

1,489

 

 

 

0.074

%

 

$

4,126

 

 

 

0.221

%

 

$

(2,637

)

 

 

(63.9

%)

 

Earnings from equity method investments for the three months ended September 30, 2021 decreased $2.6 million or 63.9% to $1.5 million from $4.1 million in 2020.  The aggregate decrease was primarily due to our acquisition of JMB, which occurred in March 2021 and has subsequently been reported by the Company as a wholly owned subsidiary. Prior to the acquisition and included in the comparable period above, the Company’s share of JMB’s earnings for the three months ended September 30, 2020, was $3.7 million.  The overall decrease was partially offset by increased earnings of $1.0 million associated with our other equity method investments.  

Other income, net

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

2021

 

 

2020

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Other income, net

 

$

409

 

 

 

0.020

%

 

$

359

 

 

 

0.019

%

 

$

50

 

 

 

13.9

%

 

Other income, net for the three months ended September 30, 2021 increased $0.1 million, or 13.9% to $0.4 million from $0.4 million in 2020.  The increase was due to higher royalties earned by our Secured Lending segment.

Provision for Income Taxes

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

2021

 

 

2020

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Income tax expense

 

$

(6,669

)

 

 

(0.331

)%

 

$

(6,511

)

 

 

(0.349

)%

 

$

158

 

 

 

2.4

%

 

Our income tax expense was $6.7 million and $6.5 million for the three months ended September 30, 2021 and 2020, respectively.  Our effective tax rate was approximately 20.3% and 21.5% for the three months ended September 30, 2021 and 2020, respectively.  For the three months ended September 30, 2021, our effective tax rate differs from the federal statutory rate primarily due to the excess tax benefit from share based compensation, the foreign derived intangible income special deduction, offset by state taxes (net of federal tax benefit), and other normal course non-deductible expenditures.  For the three months ended September 30, 2020, the Company recorded tax expense which differed from the statutory rates primarily due to the foreign derived intangible income special deduction, offset by state taxes (net of federal tax benefit), and other normal course non-deductible expenditures.

 

52

 

SEGMENT RESULTS OF OPERATIONS

The Company conducts its operations in three reportable segments: (i) Wholesale Sales & Ancillary Services (formerly known as Wholesale Trading & Ancillary Services), (ii) Direct-to-Consumer (formerly known as Direct Sales), and (iii) Secured Lending. Each of these reportable segments represents an aggregation of operating segments that meets the aggregation criteria set forth in the Segment Reporting Topic 280 of the FASB Accounting Standards Codification (“ASC”).

Results of Operations  — Wholesale Sales & Ancillary Services Segment  

The Company operates its Wholesale Sales & Ancillary Services segment through A-Mark Precious Metals, Inc., and its wholly-owned subsidiaries, A-Mark Trading AG (“AMTAG”), Transcontinental Depository Services ("TDS"), A-M Global Logistics, LLC ("Logistics"), and AM&ST Associates, LLC ("AMST" or "Silver Towne" or the "Mint"). Also, the Wholesale Sales & Ancillary Services segment includes the consolidating eliminations of inter-segment transactions and unallocated segment adjustments.

Overview of Results of Operations for the Three Months Ended September 30, 2021 and 2020

— Wholesale Sales & Ancillary Services Segment

The operating results of our Wholesale Sales & Ancillary Services segment for the three months ended September 30, 2021 and 2020 are as follows:

 

in thousands, except performance metrics

 

 

 

 

 

 

 

Three Months Ended September 30,

 

2021

 

 

 

2020

 

 

 

$

 

 

%

 

 

 

$

 

 

 

% of

revenue

 

 

 

$

 

 

 

% of

revenue

 

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Revenues

 

$

1,500,010

 

(a)

 

 

100.000

%

 

 

$

1,813,708

 

(c)

 

 

100.000

%

 

 

$

(313,698

)

 

 

(17.3

%)

Gross profit

 

 

25,549

 

 

 

 

1.703

%

(b)

 

 

30,622

 

 

 

 

1.688

%

(d)

 

$

(5,073

)

 

 

(16.6

%)

Selling, general, and administrative expenses

 

 

(8,682

)

 

 

 

(0.579

)%

 

 

 

(7,402

)

 

 

 

(0.408

)%

 

 

$

1,280

 

 

 

17.3

%

Depreciation and amortization expense

 

 

(232

)

 

 

 

(0.015

)%

 

 

 

(205

)

 

 

 

(0.011

)%

 

 

$

27

 

 

 

13.2

%

Interest income

 

 

3,009

 

 

 

 

0.201

%

 

 

 

2,438

 

 

 

 

0.134

%

 

 

$

571

 

 

 

23.4

%

Interest expense

 

 

(2,438

)

 

 

 

(0.163

)%

 

 

 

(2,948

)

 

 

 

(0.163

)%

 

 

$

(510

)

 

 

(17.3

%)

Earnings from equity method investments

 

 

1,489

 

 

 

 

0.099

%

 

 

 

4,126

 

 

 

 

0.227

%

 

 

$

(2,637

)

 

 

(63.9

%)

Unrealized losses on foreign exchange

 

 

(224

)

 

 

 

(0.015

)%

 

 

 

(97

)

 

 

 

(0.005

)%

 

 

$

127

 

 

 

130.9

%

Net income before provision for income taxes

 

$

18,471

 

 

 

 

1.231

%

 

 

$

26,534

 

 

 

 

1.463

%

 

 

$

(8,063

)

 

 

(30.4

%)

Performance Metrics:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gold ounces sold(1)

 

 

522,000

 

 

 

 

 

 

 

 

 

704,000

 

 

 

 

 

 

 

 

 

(182,000

)

 

 

(25.9

%)

Silver ounces sold(2)

 

 

21,502,000

 

 

 

 

 

 

 

 

 

23,918,000

 

 

 

 

 

 

 

 

 

(2,416,000

)

 

 

(10.1

%)

Wholesale Sales ticket volume(3)

 

 

26,078

 

 

 

 

 

 

 

 

 

35,341

 

 

 

 

 

 

 

 

 

(9,263

)

 

 

(26.2

%)

 

(a)

Revenues are presented net of inter-segment transactions with the Direct-to-Consumer segment that totaled $440.8 million. This segment’s gross sales before eliminations of inter-segment activity totaled $1.940 billion.

(b)

Gross profit percentage before elimination of inter-segment sales to the Direct-to-Consumer segment was 1.470% for the period.

(c)

Revenues are presented net of inter-segment transactions with the Direct-to-Consumer segment that totaled $20.5 million. This segment’s gross sales before eliminations of inter-segment activity totaled $1.834 billion.

(d)

Gross profit percentage before elimination of inter-segment sales to the Direct-to-Consumer segment was 1.667% for the period.

(1)

Gold ounces sold represents the ounces of gold product sold and delivered to the customer during the period, excluding ounces of gold recorded on forward contracts.

(2)

Silver ounces sold represents the ounces of silver product sold and delivered to the customer during the period, excluding ounces of silver recorded on forward contracts.

(3)

Trading ticket volume represents the total number of product orders processed by A-Mark.

 

53

 

Revenues — Wholesale Sales & Ancillary Services

 

in thousands, except performance metrics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

2021

 

 

 

2020

 

 

 

$

 

 

%

 

 

 

$

 

 

 

% of

revenue

 

 

 

$

 

 

 

% of

revenue

 

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Revenues

 

$

1,500,010

 

(a)

 

 

100.000

%

 

 

$

1,813,708

 

(c)

 

 

100.000

%

 

 

$

(313,698

)

 

 

(17.3

%)

Performance Metrics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gold ounces sold

 

 

522,000

 

 

 

 

 

 

 

 

 

704,000

 

 

 

 

 

 

 

 

 

(182,000

)

 

 

(25.9

%)

Silver ounces sold

 

 

21,502,000

 

 

 

 

 

 

 

 

 

23,918,000

 

 

 

 

 

 

 

 

 

(2,416,000

)

 

 

(10.1

%)

Wholesale Sales ticket volume

 

 

26,078

 

 

 

 

 

 

 

 

 

35,341

 

 

 

 

 

 

 

 

 

(9,263

)

 

 

(26.2

%)

 

(a)

Revenues are presented net of inter-segment transactions with the Direct-to-Consumer segment that totaled $440.8 million. This segment’s gross sales before eliminations of inter-segment activity totaled $1.940 billion.

(c)

Revenues are presented net of inter-segment transactions with the Direct-to-Consumer segment that totaled $20.5 million. This segment’s gross sales before eliminations of inter-segment activity totaled $1.834 billion.

 

Revenues for the three months ended September 30, 2021 decreased $0.314 billion, or 17.3%, to $1.5 billion from $1.814 billion in 2020. Excluding an increase in forward sales of $132.5 million, our revenues decreased $446.2 million, which was due to a decrease in gold and silver ounces sold and lower gold selling prices, partially offset by higher silver selling prices.  The overall decrease in revenue and product volumes sold by the Wholesale Sales & Ancillary Services segment was primarily due to the elimination of inter-segment transactions with JMB, where no such eliminations occurred for sales to JMB during the comparable period, which was prior to its acquisition.   Since the Company’s March 2021 acquisition of JMB, the wholly owned subsidiary’s results are now included in the Direct-to-Consumer Segment. The Wholesale Sales & Ancillary Services segment’s gross sales before elimination of inter-segment activity for the three months ended September 30, 2021 increased $106.0 million, or 6.0%, to $1.940 billion from $1.834 billion in 2020, which was due to an increase in silver ounces sold at higher selling prices, partially offset by lower gold ounces sold at lower selling prices.

Gold ounces sold for the three months ended September 30, 2021 decreased 182,000 ounces, or 25.9%, to 522,000 ounces from 704,000 ounces in 2020. Silver ounces sold for the three months ended September 30, 2021 decreased 2,416,000 ounces, or 10.1%, to 21,502,000 ounces from 23,918,000 ounces in 2020. On average, the selling prices for gold decreased by 5.3% and selling prices for silver increased by 12.8% during the three months ended September 30, 2021 as compared to the prior year period.

Gold ounces sold before eliminations of inter-segment activity for the three months ended September 30, 2021 decreased 56,000 ounces, or 7.8%, to 660,000 ounces from 716,000 ounces in 2020. Silver ounces sold before eliminations of inter-segment activity for the three months ended September 30, 2021 increased 4,075,000 ounces, or 16.9%, to 28,181,000 ounces from 24,106,000 ounces in 2020.

The Wholesale Sales ticket volume for the three months ended September 30, 2021 decreased by 9,263 tickets, or 26.2%, to 26,078 tickets from 35,341 tickets in 2020. The current year ticket volume aligns with the decrease in the ounces sold as compared to the prior year period.

Gross Profit — Wholesale Sales & Ancillary Services

 

in thousands, except performance metric

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

2021

 

 

 

2020

 

 

 

$

 

 

%

 

 

 

$

 

 

 

% of

revenue

 

 

 

$

 

 

 

% of

revenue

 

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Gross profit

 

$

25,549

 

 

 

 

1.703

%

(b)

 

$

30,622

 

 

 

 

1.688

%

(d)

 

$

(5,073

)

 

 

(16.6

%)

Performance Metric

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale Sales ticket volume

 

 

26,078

 

 

 

 

 

 

 

 

 

35,341

 

 

 

 

 

 

 

 

 

(9,263

)

 

 

(26.2

%)

 

(b)

Gross profit percentage before elimination of inter-segment sales to the Direct-to-Consumer segment was 1.470% for the period.

(d)

Gross profit percentage before elimination of inter-segment sales to the Direct-to-Consumer segment was 1.667% for the period.

 

Gross profit for the three months ended September 30, 2021 decreased by $5.1 million, or 16.6%, to $25.5 million from $30.6 million in 2020. The overall gross profit decrease was primarily due to the elimination of inter-segment transactions with JMB, as discussed in the preceding Revenues section.

This segment’s profit margin percentage increased by 1.5 basis points to 1.703% from 1.688% in 2020. The increase in gross margin percentage was mainly attributable to wider premium spreads due to increased silver demand and supply constraints and the impact of increased forward sales, offset by lower trading profits. Forward sales increase revenues but are associated with negligible

54

gross margins. The Company enters into forward contracts to hedge its precious metals price risk exposure and not for speculative purposes.

Selling, General and Administrative Expenses — Wholesale Sales & Ancillary Services

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

2021

 

 

 

2020

 

 

 

$

 

 

%

 

 

 

$

 

 

 

% of

revenue

 

 

 

$

 

 

 

% of

revenue

 

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Selling, general, and administrative expenses

 

$

(8,682

)

 

 

 

(0.579

)%

 

 

$

(7,402

)

 

 

 

(0.408

)%

 

 

$

1,280

 

 

 

17.3

%

 

Selling, general and administrative expenses for the three months ended September 30, 2021 increased $1.3 million, or 17.3%, to $8.7 million from $7.4 million in 2020. The change was primarily due to increased consulting and professional fees of $0.7 million, higher insurance costs of $0.4 million, and increased compensation expense (including performance-based accruals) of $0.2 million.

Interest Income — Wholesale Sales & Ancillary Services

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

2021

 

 

 

2020

 

 

 

$

 

 

%

 

 

 

$

 

 

 

% of

revenue

 

 

 

$

 

 

 

% of

revenue

 

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Interest income

 

$

3,009

 

 

 

 

0.201

%

 

 

$

2,438

 

 

 

 

0.134

%

 

 

$

571

 

 

 

23.4

%

 

Interest income for the three months ended September 30, 2021 increased $0.6 million, or 23.4%, to $3.0 million from $2.4 million in 2020.  The overall increase is primarily due to higher interest earned from repurchase agreements of $0.4 million and an increase in interest income earned from spot deferred orders of $0.2 million.

Interest Expense — Wholesale Sales & Ancillary Services

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

2021

 

 

 

2020

 

 

 

$

 

 

%

 

 

 

$

 

 

 

% of

revenue

 

 

 

$

 

 

 

% of

revenue

 

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Interest expense

 

$

(2,438

)

 

 

 

(0.163

)%

 

 

$

(2,948

)

 

 

 

(0.163

)%

 

 

$

(510

)

 

 

(17.3

%)

 

Interest expense for the three months ended September 30, 2021 decreased $0.5 million, or 17.3% to $2.4 million from $2.9 million in 2020. The decrease was primarily driven by lower interest expense related to our Trading Credit Facility and Notes Payable of $0.2 million, liabilities on borrowed metals of $0.2 million, inter-segment eliminations related to JMB’s product financing activity with A-Mark of $0.8 million, partially offset by higher interest and fees from product financing arrangements of $0.7 million.

Earnings from equity method investments— Wholesale Sales & Ancillary Services

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

2021

 

 

 

2020

 

 

 

$

 

 

%

 

 

 

$

 

 

 

% of

revenue

 

 

 

$

 

 

 

% of

revenue

 

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Earnings from equity method investments

 

$

1,489

 

 

 

 

0.099

%

 

 

$

4,126

 

 

 

 

0.227

%

 

 

$

(2,637

)

 

 

(63.9

%)

 

Earnings from equity method investments for the three months ended September 30, 2021 decreased $2.6 million, or 63.9% to $1.5 million from $4.1 million in 2020. The aggregate decrease was primarily due to our acquisition of JMB, which occurred in March 2021 and has subsequently been reported by the Company as a wholly owned subsidiary. Prior to the acquisition and included in the comparable period above, the Company’s share of JMB’s earnings for the three months ended September 30, 2020, was $3.7 million.  The overall decrease was partially offset by increased earnings of $1.0 million from our other equity method investments.

 

 

55

 

Results of Operations  — Direct-to-Consumer Segment

The Company operates its Direct-to-Consumer segment through our wholly-owned subsidiaries: JM Bullion, Inc. (“JMB”), Goldline, Inc. (“Goldline”), and through our 50%-owned subsidiary Precious Metals Purchasing Partners, LLC ("PMPP").  As a result of the completion of our acquisition of JMB in March 2021 (see Note 1 of the Company’s condensed consolidated financial statements) JMB’s financial activity, including performance data, is included in the Direct-to-Consumer segment's current fiscal year quarterly results.

Overview of Results of Operations for the Three Months Ended September 30, 2021 and 2020

— Direct-to-Consumer Segment

The operating results of our Direct-to-Consumer segment for the three months ended September 30, 2021 and 2020 are as follows:

 

in thousands, except performance metrics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

2021

 

 

 

2020

 

 

 

$

 

 

%

 

 

 

$

 

 

 

% of

revenue

 

 

 

$

 

 

 

% of

revenue

 

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Revenues

 

$

513,961

 

(a)

 

 

100.000

%

 

 

$

52,408

 

(c)

 

 

100.000

%

 

 

$

461,553

 

 

 

880.7

%

Gross profit

 

 

30,460

 

 

 

 

5.927

%

(b)

 

 

5,523

 

 

 

 

10.538

%

(d)

 

$

24,937

 

 

 

451.5

%

Selling, general and administrative expenses

 

 

(7,539

)

 

 

 

(1.467

)%

 

 

 

(1,695

)

 

 

 

(3.234

)%

 

 

$

5,844

 

 

 

344.8

%

Depreciation and amortization expense

 

 

(7,951

)

 

 

 

(1.547

)%

 

 

 

(208

)

 

 

 

(0.397

)%

 

 

$

7,743

 

 

 

3722.6

%

Interest expense

 

 

(823

)

 

 

 

(0.160

)%

 

 

 

—

 

 

 

 

—

 

 

 

$

823

 

 

 

—

 

Net income before provision for income taxes

 

$

14,147

 

 

 

 

2.753

%

 

 

 

3,620

 

 

 

 

6.907

%

 

 

$

10,527

 

 

 

290.8

%

Performance Metrics:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gold ounces sold(1)

 

 

147,000

 

 

 

 

 

 

 

 

 

17,000

 

 

 

 

 

 

 

 

 

130,000

 

 

 

764.7

%

Silver ounces sold(2)

 

 

6,625,000

 

 

 

 

 

 

 

 

 

330,000

 

 

 

 

 

 

 

 

 

6,295,000

 

 

 

1907.6

%

Number of new customers(3)

 

 

33,800

 

 

 

 

 

 

 

 

 

900

 

 

 

 

 

 

 

 

 

32,900

 

 

 

3655.6

%

Number of active customers(4)

 

 

117,700

 

 

 

 

 

 

 

 

 

3,100

 

 

 

 

 

 

 

 

 

114,600

 

 

 

3696.8

%

Number of total customers(5)

 

 

1,835,800

 

 

 

 

 

 

 

 

 

159,300