Filing Overview
Registrant: A-Mark Precious Metals, Inc. The supplied metadata identifies Gold.Com, Inc. and “2016 Q3,” but the filing text is A-Mark’s unaudited Form 10-Q for the quarter and nine months ended March 31, 2017, within fiscal 2017. The filing was signed May 10, 2017.
A-Mark is a full-service precious-metals trading company offering gold, silver, platinum and palladium products, financing, hedging, storage, logistics and secured lending. The Company also owns 55% of AM&ST Associates, LLC, a minting joint venture formed with Silvertowne in August 2016.
Financial Highlights
| Metric | Three months ended March 31, 2017 | Three months ended March 31, 2016 | Nine months ended March 31, 2017 | Nine months ended March 31, 2016 |
|---|---|---|---|---|
| Revenue | $1.731 billion | $1.513 billion | $5.663 billion | $5.049 billion |
| Gross profit | $7.3 million | $6.9 million | $25.3 million | $27.0 million |
| Gross margin | 0.424% | 0.453% | 0.446% | 0.534% |
| Net income | $1.3 million | $1.2 million | $6.0 million | $8.2 million |
| Net income attributable to Company | $1.2 million | $1.2 million | $5.9 million | $8.2 million |
| Diluted EPS | $0.16 | $0.17 | $0.82 | $1.15 |
| Interest income | $3.3 million | $2.3 million | $9.1 million | $6.4 million |
| Interest expense | $2.7 million | $1.7 million | $7.4 million | $4.2 million |
Balance Sheet and Liquidity
- Cash was $6.4 million at March 31, 2017, down from $17.1 million at June 30, 2016.
- Total assets were $523.0 million, compared with $437.1 million at June 30, 2016.
- Inventory increased to $345.5 million from $245.1 million, including $156.5 million of restricted inventory supporting product financing arrangements.
- Secured loans receivable increased to $92.7 million from $70.5 million.
- Lines of credit were $213.0 million, compared with $212.0 million, with approximately $23.1 million of availability under the approved borrowing base at March 31, 2017.
- Product financing arrangements increased to $156.5 million from $59.4 million.
- Total liabilities were $450.8 million and total stockholders’ equity was $72.2 million, including $3.6 million of non-controlling interest.
- The Trading Credit Facility provides access of up to $275.0 million, including a $225.0 million base and a $50.0 million accordion. It was scheduled to mature May 31, 2017; management expected an extension to March 31, 2018 on substantially the same terms.
Cash Flow
- Operating activities used $104.8 million during the nine months ended March 31, 2017, versus $81.0 million used in the prior comparable period.
- Investing activities used $2.7 million, versus $22.3 million used in the prior period.
- Financing activities provided $96.9 million, primarily from product financing arrangements and borrowings under lines of credit.
- Net cash decreased $10.7 million, from $17.1 million at June 30, 2016 to $6.4 million at March 31, 2017.
- Management stated that cash, borrowing availability, product financing arrangements and expected operating cash flow should provide sufficient liquidity for at least the next twelve months.
Material Changes Versus Prior Comparable Period
- Quarterly revenue increased 14.4%, while nine-month revenue increased 12.2%, primarily because of higher precious-metals prices and increased forward sales despite lower physical ounces sold.
- Quarterly gross profit increased 6.9%, but nine-month gross profit declined 6.3%. Gross margins contracted in both periods.
- Quarterly net income attributable to the Company declined 2.4%; nine-month net income attributable to the Company declined 28.5%. Diluted nine-month EPS decreased 28.7% to $0.82.
- Gold ounces sold declined 12.5% in the quarter and 16.7% year to date. Silver ounces sold declined 23.4% and 34.9%, respectively.
- Trading ticket volume increased 26.5% for the quarter and 25.6% for the nine months, attributed primarily to greater use of the online trading portal.
- Secured loans at period-end increased 175.9% to 2,138, primarily following acquisitions of bullion-based loan portfolios. Interest income increased 45.9% quarterly and 43.0% year to date.
- Interest expense increased 62.8% quarterly and 75.3% year to date, reflecting greater credit-facility usage, higher inventory and product financing balances, and higher LIBOR.
- AMST contributed new operations, assets, goodwill and non-controlling interest. The acquisition added approximately $4.3 million of goodwill and $2.5 million of identifiable intangible assets.
Outlook, Risks and Unusual Items
- The Company operates in a high-volume, low-margin industry. Revenue is heavily influenced by precious-metals prices, trading volume and market volatility and may not indicate changes in physical volume.
- The Company substantially hedges inventory and open commitments. At March 31, 2017, inventory subject to price risk was $639.0 million and hedging instruments totaled $637.4 million, leaving reported net inventory subject to commodity-price risk of $1.7 million.
- Key risks include dependence on the demand-based Trading Credit Facility, variable interest rates, lender repayment demands, refinancing risk, counterparty default, commodity-price volatility, customer concentration, inventory loss or theft, fraud and regulatory changes.
- Two customers represented 37.0% of nine-month revenue, compared with 24.1% in the prior comparable period. The filing states that loss of these customers could materially harm operations.
- AMST requires A-Mark to purchase at least 300,000 ounces of silver products per week on average over consecutive four-week periods during the initial agreement term. A-Mark also guaranteed certain refined-silver lease obligations of AMST to Asahi.
- The Silvertowne contingent earn-out liability was $1.3 million at March 31, 2017, down from its initial $1.5 million valuation; the revaluation generated $0.2 million of other income during the quarter.
- The IRS commenced an examination of the Company’s fiscal 2015 tax return. The outcome could not be determined at the filing date.
- The Company was implementing a new enterprise resource planning system, creating potential execution, reporting and internal-control risks.
- The Board declared a subsequent quarterly dividend of $0.08 per share on May 2, 2017. Future dividends remain subject to Board approval, liquidity, performance and bank-covenant considerations.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting. No material legal proceedings were reported.
Investor Verification Checklist
- Confirm the issuer and period: the supplied text is A-Mark Precious Metals, Inc.’s March 31, 2017 Form 10-Q, not a Gold.Com, Inc. filing or a 2016 third-quarter filing.
- Verify the extension or replacement of the Trading Credit Facility, its demand feature, borrowing-base availability and covenant compliance.
- Assess liquidity against $213.0 million of lines-of-credit borrowings, $156.5 million of product financing obligations and only $6.4 million of cash.
- Evaluate whether lower physical ounces sold and declining margins offset growth in revenue, trading tickets and secured lending.
- Review AMST’s operating performance, minimum purchase obligation, earn-out exposure, supply agreement and related-party arrangements.
- Monitor customer concentration, counterparty exposure and the effectiveness of precious-metals hedging.
- Follow the IRS examination, ERP implementation and any changes to dividends or financing availability.