10-Q

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, 2022

☐ 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. ☑

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐

As of November 1, 2022, the registrant had 23,453,339 shares of common stock, par value $0.01 per share outstanding.

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

For the Three Months Ended September 30, 2022

TABLE OF CONTENTS


			Page
PART I		FINANCIAL INFORMATION	3

	Item 1.	Financial Statements	3
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	77
	Item 4.	Controls and Procedures	78

PART II		OTHER INFORMATION	79

	Item 1.	Legal Proceedings	79
	Item 1A.	Risk Factors	79
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	93
	Item 3.	Defaults Upon Senior Securities	93
	Item 4.	Mine Safety Disclosures	93
	Item 5.	Other Information	93
	Item 6.	Exhibits	94

Signatures			95

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, 2022 and June 30, 2022	4
Condensed Consolidated Statements of Income for the Three Months Ended September 30, 2022 and 2021	6
Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended September 30, 2022 and 2021	7
Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2022 and 2021	8
Notes to the Condensed Consolidated Financial Statements	9
Note 1. Description of Business	9
Note 2. Summary of Significant Accounting Policies	10
Note 3. Assets and Liabilities, at Fair Value	21
Note 4. Receivables	25
Note 5. Secured Loans Receivable	25
Note 6. Inventories	27
Note 7. Leases	28
Note 8. Property, Plant, and Equipment	29
Note 9. Goodwill and Intangible Assets	30
Note 10. Long-Term Investments	31
Note 11. Accounts Payable and Other Current Liabilities	31
Note 12. Derivative Instruments and Hedging Transactions	32
Note 13. Income Taxes	35
Note 14. Related Party Transactions	36
Note 15. Financing Agreements	38
Note 16. Commitments and Contingencies	40
Note 17. Stockholders' Equity	41
Note 18. Customer and Supplier Concentrations	43
Note 19. Segments and Geographic Information	45
Note 20. Subsequent Events	48

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except for share data)


	September 30, 2022		June 30, 2022
ASSETS
Current assets:
Cash(1)	$	64,635	$	37,783
Receivables, net		110,848		97,040
Derivative assets		32,507		91,743
Secured loans receivable(1)		87,313		126,217
Precious metals held under financing arrangements(1)		49,327		79,766
Inventories:
Inventories(1)		458,487		458,347
Restricted inventories		167,009		282,671
		625,496		741,018
Prepaid expenses and other assets(1)		9,134		7,558
Total current assets		979,260		1,181,125
Operating lease right of use assets		5,981		6,482
Property, plant, and equipment, net		10,477		9,845
Goodwill		100,943		100,943
Intangibles, net		65,253		67,965
Long-term investments		73,022		70,828
Other long-term assets		5,471		5,471
Total assets	$	1,240,407	$	1,442,659
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Lines of credit	$	63,000	$	215,000
Liabilities on borrowed metals		55,909		59,417
Product financing arrangements		167,009		282,671
Accounts payable and other payables		28,574		6,127
Deferred revenue and other advances		183,183		175,545
Derivative liabilities		89,899		75,780
Accrued liabilities(1)		17,663		21,813
Income tax payable		10,227		382
Total current liabilities		615,464		836,735
Notes payable(1)		98,182		94,073
Deferred tax liabilities		15,388		15,408
Other liabilities		5,483		5,972
Total liabilities		734,517		952,188
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, authorized 10,000,000 shares; issued and outstanding: none as of September 30, 2022 and June 30, 2022		—		—
Common stock, par value $0.01; 40,000,000 shares authorized; 23,453,339 and 23,379,888 shares issued and outstanding as of September 30, 2022 and June 30, 2022, respectively		235		234
Additional paid-in capital		165,814		166,526
Accumulated other comprehensive income		52		—
Retained earnings		338,816		321,849
Total A-Mark Precious Metals, Inc. stockholders’ equity		504,917		488,609
Noncontrolling interest		973		1,862
Total stockholders’ equity		505,890		490,471
Total liabilities, noncontrolling interest and stockholders’ equity	$	1,240,407	$	1,442,659

(1)

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

See accompanying Notes to the Condensed Consolidated Financial Statements

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 "AMCF 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 AMCF 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 AMCF Notes have a first priority security interest in the assets as shown in the table below, which are in excess of the AMCF Notes' aggregate principal amount. Additionally, the liabilities of the VIE include intercompany balances, which are eliminated in consolidation. (See Note 15.)


	September 30, 2022		June 30, 2022
ASSETS OF THE CONSOLIDATED VIE
Cash	$	22,976	$	3,264
Secured loans receivable		49,394		92,246
Precious metals held under financing arrangements		18,256		13,524
Inventories		22,293		4,752
Prepaid expenses and other assets		56		23
Total assets of the consolidated variable interest entity	$	112,975	$	113,809
LIABILITIES OF THE CONSOLIDATED VIE
Deferred payment obligations(1)	$	20,951	$	21,081
Accrued liabilities		643		832
Notes payable(2)		99,295		99,073
Total liabilities of the consolidated variable interest entity	$	120,889	$	120,986

(1)

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

(2)

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

See accompanying Notes to the Condensed Consolidated Financial Statements

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, 2022			September 30, 2021
Revenues	$	1,900,351		$	2,013,971
Cost of sales		1,823,759			1,957,962
Gross profit		76,592			56,009
Selling, general, and administrative expenses		(17,784	)		(16,677	)
Depreciation and amortization expense		(3,184	)		(8,271	)
Interest income		5,096			5,531
Interest expense		(6,130	)		(5,473	)
Earnings from equity method investments		2,677			1,489
Other income, net		527			409
Unrealized gains (losses) on foreign exchange		214			(224	)
Net income before provision for income taxes		58,008			32,793
Income tax expense		(12,771	)		(6,669	)
Net income		45,237			26,124
Net income attributable to noncontrolling interest		112			100
Net income attributable to the Company	$	45,125		$	26,024
Basic and diluted net income per share attributable to A-Mark Precious Metals, Inc.:
Basic	$	1.93		$	1.16
Diluted	$	1.83		$	1.08

Weighted average shares outstanding:
Basic		23,396,400			22,525,200
Diluted		24,685,200			24,018,600

See accompanying Notes to the Condensed Consolidated Financial Statements

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			Accumulated other comprehensive income		Total A-Mark Precious Metals, Inc. Stockholders' Equity			Non- Controlling Interest			Total Stockholders’ Equity
Balance, June 30, 2021		22,459,314	$	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
Exercise of share-based awards		120,630		—		762			—			—		762			—			762
Net settlement of share-based awards		670		—		(13	)		—			—		(13	)		—			(13	)
Common stock issued for increase in long-term investments		123,180		1		2,977			—			—		2,978			—			2,978
Dividends declared ($1.00 per common share)		—		—		—			(22,639	)		—		(22,639	)		—			(22,639	)
Balance, September 30, 2021		22,703,794	$	114	$	154,619		$	215,475		$	—	$	370,208		$	1,419		$	371,627

Balance, June 30, 2022		23,379,888	$	234	$	166,526		$	321,849		$	—	$	488,609		$	1,862		$	490,471
Net income		—		—		—			45,125			—		45,125			112			45,237
Share-based compensation		—		—		535			—			—		535			—			535
Earnings distribution paid to noncontrolling interest		—		—		—			—			—		—			(1,001	)		(1,001	)
Cumulative translation adjustment, net of tax		—		—		—			—			52		52			—			52
Common stock issued as employee compensation		10,500		—		293			—			—		293			—			293
Exercise of share-based awards		3,333		—		63			—			—		63			—			63
Net settlement of share-based awards		59,618		1		(1,606	)		—			—		(1,605	)		—			(1,605	)
Dividends declared ($1.00 per common share)