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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

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

For the quarterly period ended March 31, 2023

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

 

img204978824_0.jpg 

 

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 May 2, 2023, the registrant had 23,260,606 shares of common stock, par value $0.01 per share outstanding.

 

 

1


 

 

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

For the Quarterly Period Ended March 31, 2023

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

 

46

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

83

 

Item 4.

Controls and Procedures

 

84

 

 

 

 

 

PART II

OTHER INFORMATION

 

84

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

84

 

Item 1A.

Risk Factors

 

84

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

98

 

Item 3.

Defaults Upon Senior Securities

 

98

 

Item 4.

Mine Safety Disclosures

 

98

 

Item 5.

Other Information

 

98

 

Item 6.

Exhibits

 

99

 

 

 

 

 

Signatures

 

 

100

 

 

 

 

 

 

 

 

2


 

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 March 31, 2023 and June 30, 2022

4

Condensed Consolidated Statements of Income for the Three and Nine Months Ended March 31, 2023 and 2022

6

Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended March 31, 2023 and 2022

7

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2023 and 2022

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

24

Note 5. Secured Loans Receivable

24

Note 6. Inventories

26

Note 7. Leases

27

Note 8. Property, Plant, and Equipment

28

Note 9. Goodwill and Intangible Assets

28

Note 10. Long-Term Investments

30

Note 11. Accounts Payable and Other Current Liabilities

30

Note 12. Derivative Instruments and Hedging Transactions

30

Note 13. Income Taxes

33

Note 14. Related Party Transactions

34

Note 15. Financing Agreements

36

Note 16. Commitments and Contingencies

38

Note 17. Stockholders' Equity

39

Note 18. Customer and Supplier Concentrations

41

Note 19. Segments and Geographic Information

43

Note 20. Subsequent Events

46

 

3


 

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except for share data)

 

 

 

March 31, 2023

 

 

June 30, 2022

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash(1)

 

$

78,101

 

 

$

37,783

 

Receivables, net

 

 

90,076

 

 

 

97,040

 

Derivative assets

 

 

58,456

 

 

 

91,743

 

Secured loans receivable(1)

 

 

96,856

 

 

 

126,217

 

Precious metals held under financing arrangements(1)

 

 

24,014

 

 

 

79,766

 

Inventories:

 

 

 

 

 

 

Inventories(1)

 

 

675,414

 

 

 

458,347

 

Restricted inventories

 

 

292,104

 

 

 

282,671

 

 

 

967,518

 

 

 

741,018

 

Income tax receivable

 

 

861

 

 

 

 

Prepaid expenses and other assets(1)

 

 

8,460

 

 

 

7,558

 

Total current assets

 

 

1,324,342

 

 

 

1,181,125

 

Operating lease right of use assets

 

 

5,410

 

 

 

6,482

 

Property, plant, and equipment, net

 

 

11,473

 

 

 

9,845

 

Goodwill

 

 

100,943

 

 

 

100,943

 

Intangibles, net

 

 

64,281

 

 

 

67,965

 

Long-term investments

 

 

80,995

 

 

 

70,828

 

Other long-term assets

 

 

5,459

 

 

 

5,471

 

Total assets

 

$

1,592,903

 

 

$

1,442,659

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Lines of credit

 

$

230,000

 

 

$

215,000

 

Liabilities on borrowed metals

 

 

25,730

 

 

 

59,417

 

Product financing arrangements

 

 

292,104

 

 

 

282,671

 

Accounts payable and other payables

 

 

10,164

 

 

 

6,127

 

Deferred revenue and other advances

 

 

253,688

 

 

 

175,545

 

Derivative liabilities

 

 

83,330

 

 

 

75,780

 

Accrued liabilities(1)

 

 

19,763

 

 

 

21,813

 

Income tax payable

 

 

 

 

 

382

 

Notes payable(1)

 

 

94,644

 

 

 

 

Total current liabilities

 

 

1,009,423

 

 

 

836,735

 

Notes payable (2)

 

 

1,752

 

 

 

94,073

 

Deferred tax liabilities

 

 

14,788

 

 

 

15,408

 

Other liabilities

 

 

4,802

 

 

 

5,972

 

Total liabilities

 

 

1,030,765

 

 

 

952,188

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

Preferred stock, $0.01 par value, authorized 10,000,000 shares; issued and outstanding: none as of March 31, 2023 and June 30, 2022

 

 

 

 

 

 

Common stock, par value $0.01; 40,000,000 shares authorized; 23,596,341 and 23,379,888 shares issued and 23,260,606 and 23,379,888 shares outstanding as of March 31, 2023 and June 30, 2022, respectively

 

 

236

 

 

 

234

 

Treasury stock, 335,735 and 0 shares at cost as of March 31, 2023 and June 30, 2022, respectively

 

 

(9,762

)

 

 

 

Additional paid-in capital

 

 

168,253

 

 

 

166,526

 

Accumulated other comprehensive loss

 

 

(1,229

)

 

 

 

Retained earnings

 

 

403,473

 

 

 

321,849

 

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

 

 

560,971

 

 

 

488,609

 

Noncontrolling interest

 

 

1,167

 

 

 

1,862

 

Total stockholders’ equity

 

 

562,138

 

 

 

490,471

 

Total liabilities, noncontrolling interest and stockholders’ equity

 

$

1,592,903

 

 

$

1,442,659

 

 

(1)
Includes amounts of the consolidated variable interest entity, which are presented separately in the table below.
(2)
Notes payable as of June 30, 2022 includes amounts of the consolidated variable interest entity, which is presented separately in the table below.

 

See accompanying Notes to the Condensed Consolidated Financial Statements

4


 

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands; unaudited)

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.)

 

 

 

March 31, 2023

 

 

June 30, 2022

 

ASSETS OF THE CONSOLIDATED VIE

 

 

 

 

 

 

Cash

 

$

1,578

 

 

$

3,264

 

Secured loans receivable

 

 

48,632

 

 

 

92,246

 

Precious metals held under financing arrangements

 

 

17,865

 

 

 

13,524

 

Inventories

 

 

50,106

 

 

 

4,752

 

Prepaid expenses and other assets

 

 

28

 

 

 

23

 

Total assets of the consolidated variable interest entity

 

$

118,209

 

 

$

113,809

 

LIABILITIES OF THE CONSOLIDATED VIE

 

 

 

 

 

 

Deferred payment obligations(1)

 

$

27,572

 

 

$

21,081

 

Accrued liabilities

 

 

594

 

 

 

832

 

Notes payable(2)

 

 

99,644

 

 

 

99,073

 

Total liabilities of the consolidated variable interest entity

 

$

127,810

 

 

$

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

5


 

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

 

 

 

Three Months Ended March 31,

 

 

Nine Months Ended March 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenues

 

$

2,317,150

 

 

$

2,109,115

 

 

$

6,167,206

 

 

$

6,069,450

 

Cost of sales

 

 

2,241,652

 

 

 

2,037,032

 

 

 

5,951,147

 

 

 

5,875,435

 

Gross profit

 

 

75,498

 

 

 

72,083

 

 

 

216,059

 

 

 

194,015

 

Selling, general, and administrative expenses

 

 

(23,841

)

 

 

(20,494

)

 

 

(62,438

)

 

 

(55,884

)

Depreciation and amortization expense

 

 

(3,340

)

 

 

(7,548

)

 

 

(9,784

)

 

 

(24,077

)

Interest income

 

 

6,087

 

 

 

5,343

 

 

 

16,167

 

 

 

16,125

 

Interest expense

 

 

(9,237

)

 

 

(5,429

)

 

 

(22,603

)

 

 

(16,297

)

Earnings (losses) from equity method investments

 

 

(70

)

 

 

1,608

 

 

 

7,276

 

 

 

4,317

 

Other income, net

 

 

641

 

 

 

493

 

 

 

2,001

 

 

 

1,335

 

Unrealized gains (losses) on foreign exchange

 

 

35

 

 

 

(135

)

 

 

250

 

 

 

(128

)

Net income before provision for income taxes

 

 

45,773

 

 

 

45,921

 

 

 

146,928

 

 

 

119,406

 

Income tax expense

 

 

(9,775

)

 

 

(8,375

)

 

 

(32,096

)

 

 

(23,797

)

Net income

 

 

35,998

 

 

 

37,546

 

 

 

114,832

 

 

 

95,609

 

Net income attributable to noncontrolling interest

 

 

78

 

 

 

164

 

 

 

306

 

 

 

409

 

Net income attributable to the Company

 

$

35,920

 

 

$

37,382

 

 

$

114,526

 

 

$

95,200

 

Basic and diluted net income per share attributable
   to A-Mark Precious Metals, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.53

 

 

$

1.64

 

 

$

4.89

 

 

$

4.19

 

Diluted

 

$

1.46

 

 

$

1.53

 

 

$

4.64

 

 

$

3.92

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

23,421,300

 

 

 

22,859,600

 

 

 

23,435,700

 

 

 

22,712,800

 

Diluted

 

 

24,655,400

 

 

 

24,425,800

 

 

 

24,690,900

 

 

 

24,275,200

 

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements

6


 

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except for share data; unaudited)

 

Common Stock

 

 

Additional Paid-in

 

 

Retained

 

 

Accumulated other comprehensive

 

 

Treasury Stock

 

 

Total A-Mark Precious Metals, Inc. Stockholders'

 

 

Non-controlling

 

 

Total Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

income (loss)

 

 

Shares

 

 

Amount

 

 

Equity

 

 

Interest

 

 

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

 

Net income

 

 

 

 

 

 

 

 

 

 

31,794

 

 

 

 

 

 

 

 

 

 

 

 

31,794

 

 

 

145

 

 

 

31,939

 

Share-based compensation

 

 

 

 

 

 

 

582

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

582

 

 

 

 

 

 

582

 

Exercise of share-based awards

 

624

 

 

 

 

 

 

652

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

652

 

 

 

 

 

 

652

 

Net settlement of share-based awards

 

114,840

 

 

 

1

 

 

 

(13

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12

)

 

 

 

 

 

(12

)

Balance, December 31, 2021

 

22,819,258

 

 

 

115

 

 

 

155,840

 

 

 

247,269

 

 

 

 

 

 

 

 

 

 

 

 

403,224

 

 

 

1,564

 

 

 

404,788

 

Net income

 

 

 

 

 

 

 

 

 

 

37,382

 

 

 

 

 

 

 

 

 

 

 

 

37,382

 

 

 

164

 

 

 

37,546

 

Share-based compensation

 

 

 

 

 

 

 

573

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

573

 

 

 

 

 

 

573

 

Exercise of share-based awards

 

208,344

 

 

 

1

 

 

 

592

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

593

 

 

 

 

 

 

593

 

Net settlement of share-based awards

 

418

 

 

 

 

 

 

(8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8

)

 

 

 

 

 

(8

)

Balance, March 31, 2022

 

23,028,020

 

 

$

116

 

 

$

156,997

 

 

$

284,651

 

 

$

 

 

 

 

 

$

 

 

$

441,764

 

 

$

1,728

 

 

$

443,492

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

 

 

 

 

 

3

 

 

 

(23,468

)

 

 

 

 

 

 

 

 

 

 

 

(23,465

)

 

 

 

 

 

(23,465

)

Dividends declared ($0.20 per common share)

 

 

 

 

 

 

 

 

 

 

(4,690

)

 

 

 

 

 

 

 

 

 

 

 

(4,690

)

 

 

 

 

 

(4,690

)

Balance, September 30, 2022

 

23,453,339

 

 

 

235

 

 

 

165,814

 

 

 

338,816

 

 

 

52

 

 

 

 

 

 

 

 

 

504,917

 

 

 

973

 

 

 

505,890

 

Net income

 

 

 

 

 

 

 

 

 

 

33,481

 

 

 

 

 

 

 

 

 

 

 

 

33,481

 

 

 

116

 

 

 

33,597

 

Share-based compensation

 

 

 

 

 

 

 

534

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

534

 

 

 

 

 

 

534

 

Cumulative translation adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,103

)

 

 

 

 

 

 

 

 

(1,103

)

 

 

 

 

 

(1,103

)

Exercise of share-based awards

 

73,336

 

 

 

1

 

 

 

661

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

662

 

 

 

 

 

 

662

 

Net settlement of share-based awards

 

3,296

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2022

 

23,529,971

 

 

 

236

 

 

 

167,009

 

 

 

372,297

 

 

 

(1,051

)

 

 

 

 

 

 

 

 

538,491

 

 

 

1,089

 

 

 

539,580

 

Net income

 

 

 

 

 

 

 

 

 

 

35,920

 

 

 

 

 

 

 

 

 

 

 

 

35,920

 

 

 

78

 

 

 

35,998

 

Share-based compensation

 

 

 

 

 

 

 

538

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

538

 

 

 

 

 

 

538

 

Cumulative translation adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

(178

)

 

 

 

 

 

 

 

 

(178

)

 

 

 

 

 

(178

)

Exercise of share-based awards

 

66,370

 

 

 

 

 

 

700

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

700

 

 

 

 

 

 

700

 

Repurchases of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(335,735

)

 

 

(9,762

)

 

 

(9,762

)

 

 

 

 

 

(9,762

)

Dividends declared ($0.20 per common share)

 

 

 

 

 

 

 

6

 

 

 

(4,744

)

 

 

 

 

 

 

 

 

 

 

 

(4,738

)

 

 

 

 

 

(4,738

)

Balance, March 31, 2023

 

23,596,341

 

 

$

236

 

 

$

168,253

 

 

$

403,473

 

 

$

(1,229

)

 

 

(335,735

)

 

$

(9,762

)

 

$

560,971

 

 

$

1,167

 

 

$

562,138

 

See accompanying Notes to the Condensed Consolidated Financial Statements

7


 

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands; unaudited)

 

 

 

Nine Months Ended March 31,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

114,832

 

 

$

95,609

 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

9,784

 

 

 

24,077

 

Amortization of loan cost

 

 

1,628

 

 

 

2,089

 

Deferred income taxes

 

 

(251

)

 

 

(4,563

)

Interest added to principal of secured loans

 

 

(10

)

 

 

(13

)

Share-based compensation

 

 

1,607

 

 

 

1,628

 

Write-down of digital assets

 

 

12

 

 

 

50

 

Earnings from equity method investments

 

 

(7,276

)

 

 

(4,317

)

Dividends received from equity method investees

 

 

551

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

Receivables

 

 

6,964

 

 

 

23,364

 

Secured loans receivable

 

 

1,012

 

 

 

747

 

Secured loans made to affiliates

 

 

 

 

 

(1,989

)

Derivative assets

 

 

33,287

 

 

 

18,563

 

Income tax receivable

 

 

(861

)

 

 

 

Precious metals held under financing arrangements

 

 

55,752

 

 

 

67,292

 

Inventories

 

 

(226,500

)

 

 

(306,244

)

Prepaid expenses and other assets

 

 

(1,488

)

 

 

(1,923

)

Accounts payable and other payables

 

 

4,037

 

 

 

20,240

 

Deferred revenue and other advances

 

 

78,143

 

 

 

(1,335

)

Derivative liabilities

 

 

7,550

 

 

 

17,244

 

Liabilities on borrowed metals

 

 

(33,687

)

 

 

(24,042

)

Accrued liabilities

 

 

(1,455

)

 

 

2,569

 

Income tax payable

 

 

(382

)

 

 

(4,748

)

Net cash provided by (used in) operating activities

 

 

43,249

 

 

 

(75,702

)

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures for property, plant, and equipment

 

 

(3,227

)

 

 

(2,106

)

Purchase of long-term investments

 

 

(5,540

)

 

 

(6,750

)

Purchase of intangible assets

 

 

(4,500

)

 

 

 

Secured loans receivable, net

 

 

28,359

 

 

 

(31,615

)

Purchase of digital assets

 

 

 

 

 

(250

)

Net cash provided by (used in) investing activities

 

 

15,092

 

 

 

(40,721

)

Cash flows from financing activities:

 

 

 

 

 

 

Product financing arrangements, net

 

 

9,433

 

 

 

(1,581

)

Dividends paid

 

 

(32,794

)

 

 

(22,639

)

Distributions paid to noncontrolling interest

 

 

(1,001

)

 

 

 

Net borrowings and repayments under lines of credit

 

 

15,000

 

 

 

70,000

 

Repayments on notes payable to related party

 

 

(2,135

)

 

 

 

Repurchases of common stock

 

 

(9,762

)

 

 

 

Proceeds from issuance of related party note

 

 

3,887

 

 

 

 

Debt funding issuance costs

 

 

(471

)

 

 

(4,187

)

Proceeds from the exercise of share-based awards

 

 

1,425

 

 

 

2,007

 

Payments for tax withholding related to net settlement of share-based awards

 

 

(1,605

)

 

 

(33

)

Net cash (used in) provided by financing activities

 

 

(18,023

)

 

 

43,567

 

Net increase (decrease) in cash

 

 

40,318

 

 

 

(72,856

)

Cash, beginning of period

 

 

37,783

 

 

 

101,405

 

Cash, end of period

 

$

78,101

 

 

$

28,549

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest paid

 

$

20,829

 

 

$

15,244

 

Income taxes paid

 

$

33,725

 

 

$

33,108

 

Income taxes refunded

 

$

(117

)

 

$

 

Non-cash investing and financing activities:

 

 

 

 

 

 

Declared distributions and unpaid dividends

 

$

98

 

 

$

 

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 the Condensed Consolidated Financial Statements

8


 

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

NOTES TO THE 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", also referred to as "we", "us", and the "Company"), its wholly-owned consolidated subsidiaries (including a wholly-owned variable interest entity), and its joint venture in which the Company has a controlling interest.

Business Segments

The Company conducts its operations in three reportable segments: (i) Wholesale Sales & Ancillary Services, (ii) Direct-to-Consumer, 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 Accounting Standards Codification ("ASC 280"). (See Note 19.)

Wholesale Sales & Ancillary Services

The Company operates its Wholesale Sales & Ancillary Services segment directly and through 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 "Silver Towne 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 1,800 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 Silver Towne Mint operations allow us to provide greater product selection to our customers 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”). As of March 31, 2023, JMB has six wholly-owned subsidiaries: Buy Gold and Silver Corp. ("BGASC"), Gold Price Group, Inc. (“GPG”), Silver.com, Inc. (“Silver.com”), Goldline Metal Buying Corp. (“GMBC”), Provident Metals Corp. (“PMC”), and Cybermetals Corp. ("CyberMetals"). 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: BGASC, GPG, Silver.com, GMBC, PMC, and CyberMetals, and references to “Goldline” may include AMIP and PMPP.

JM Bullion, Inc.

JMB is a leading e-commerce retailer providing access to a broad array of gold, silver, copper, platinum, and palladium products through its websites. As of March 31, 2023, JMB operated seven separately branded, company-owned websites targeting specific niches within the precious metals retail market, including JMBullion.com, ProvidentMetals.com, Silver.com, BGASC.com, Cybermetals.com, GoldPrice.org, and SilverPrice.org. Typically, JMB offers approximately 4,000 different products during a fiscal year, measured by stock keeping units or SKUs, on its websites. This number can vary over time, particularly when demand is high and certain SKUs may be out of stock.

9


 

In April 2022, JMB commercially launched the CyberMetals online platform, where customers can purchase and sell fractional shares of digital gold, silver, platinum, and palladium bars in a range of denominations. CyberMetals’ customers have the option to convert their digital holdings to fabricated precious metals products via an integrated redemption flow with JMB. These products may be designated for storage by the Company or shipped directly to the customer.

Goldline, Inc.

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

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”).

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

AMCF, a wholly-owned subsidiary of CFC, was formed for the purpose of securitizing eligible secured loans of CFC. AMCF issued and administers the AMCF Notes. (See Note 15.)

CAI is a holding company that has a 50%-ownership stake in Collectible Card Partners, LLC ("CCP"). The purpose of CCP is to provide capital to fund commercial loans secured by graded sports 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. Intercompany accounts and transactions are eliminated.

Comprehensive Income

Our other comprehensive income and losses are comprised of unrealized gains and losses associated with the translation of foreign-based equity method investments which are shown in our condensed consolidated statements of stockholders' equity.

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 (primarily, with respect to precious metal inventory, derivatives, certain financial instruments, and certain investments), impairment assessments of property, plant and equipment and intangible assets, valuation allowance determination on deferred tax assets, determining the incremental borrowing rate for calculating right of use assets and lease liabilities, and revenue recognition judgments. Actual results could materially differ from these estimates.

Reclassification

In our condensed consolidated statements of stockholders' equity, we present (i) exercise of share-based awards and (ii) net settlement of share-based awards and in our condensed consolidated statements of cash flows, we present (i) proceeds from the exercise of share-based awards and (ii) payments for tax withholding related to net settlement of share-based awards as separate line-items. In prior fiscal years the aggregate amounts were presented in a single line-item, as net settlement on issuance of common shares on exercise of shared-based awards.

10


 

Prior periods have been reclassified to conform to the current period presentation. This reclassification has no impact on previously reported net income, financial position, or cash flows.

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 and nine months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2023 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 June 30, 2022 (the “2022 Annual Report”), as filed with the SEC. Amounts related to disclosure of June 30, 2022 balances within these interim condensed consolidated financial statements were derived from the audited consolidated financial statements and notes thereto included in the 2022 Annual Report.

Stock Split in the Form of a Dividend

On April 28, 2022, the Company’s board of directors declared a two-for-one split of A-Mark’s common stock in the form of a stock dividend. Each stockholder of record at the close of business on May 23, 2022 received a dividend of one additional share of common stock for every share held on the record date, which was distributed on June 6, 2022. All share and per share amounts (except par value) have been retroactively adjusted to reflect the stock split in the form of a stock dividend for all periods presented.

Dividends are recorded if and when they are declared by the board of directors (see Note 17).

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"). All transactions in foreign currencies are recorded in US dollars at the then-current exchange rate(s). Upon settlement of the underlying transaction, all amounts are remeasured to US dollars at the current exchange rate on date of settlement. All unsettled foreign currency transactions that remain in accounts receivable and trade account payables are remeasured to US dollars at the period end exchange rates. All remeasurement gains and losses are recorded in the current period net income.

The Company's wholly-owned foreign subsidiary, AMTAG, also generates remeasurement gains and losses. AMTAG functions as the Company’s international sales and marketing support and has a functional currency of USD, but maintains its books of record in the European Union Euro.

11


 

For the Company’s foreign-based equity method investments, the proportionate share of the investee’s income is translated into U.S. dollars at the average exchange rate for the period and the investment is translated using the exchange rate as of the end of the reporting period. The unrealized gains and losses associated with the translation of the investment are deferred in accumulated other comprehensive income on the Company’s condensed consolidated balance sheets.

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 Business Combinations Topic 805 of the ASC (“ASC 805”). 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 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 flows.

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 VIE's 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 March 31, 2023 and June 30, 2022, 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 15.)

12


 

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 March 31, 2023 and June 30, 2022.

Allowance for Credit Losses

On July 1, 2022, the Company adopted ASU No. 2016-13, Financial Instruments-Credit Losses Topic 326: Measurement of Credit Losses on Financial Instruments, as amended by ASC 326, which introduces a new credit reserving methodology known as the Current Expected Credit Loss ("CECL") model. The CECL model applies to financial assets measured at amortized cost, including accounts receivable, contract assets and held-to-maturity loan receivables. Under the CECL model, we identify allowances for credit losses based on future expected losses when accounts receivable, contract assets or held-to-maturity loan receivables are created rather than when losses are probable. We expect trends and business practices to continue in a manner consistent with historical activity.

The Company sets credit and position risk limits based on management's judgements of the customer's creditworthiness and regularly monitors its credit arrangements. 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.

ASC 326 provides a practical expedient for assets secured by collateral when repayment is expected to be provided substantially through the sale of the collateral in the event of the borrower's financial difficulty. In these arrangements, a reporting entity may estimate the expected credit losses by comparing the fair value of the collateral as of the balance sheet date to the asset’s amortized cost basis. In situations when the fair value of the collateral is equal to or greater than the amortized cost, a reporting entity may determine that there are no expected credit losses. The Company applies the practical expedient based on collateral maintenance provisions in estimating an allowance for credit losses for its secured loan receivables activity. The Company has not historically experienced credit losses related to its lending activity, and since it does not expect any future losses, no allowance has been recorded for this asset class.

The Company has not historically experienced credit losses related to its other receivables activity; including (i) customer trade receivables, (ii) wholesale trade advances, and (iii) due from brokers, and, accordingly, no allowance has been recorded for these asset classes.

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 March 31, 2023 and June 30, 2022, precious metals held under financing arrangements totaled $24.0 million and $79.8 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.

13


 

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 lease agreements do not contain any significant residual value guarantees or material restrictive covenants. Our finance leases 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 Company has insignificant finance lease activity at this time.

The ROU asset amounts 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.

Operating lease cost is recognized on a straight-line basis over the lease term. 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. (See Note 7.)

For a lease modification, an evaluation is performed to determine if it should be treated as either a separate lease or a change in the accounting of an existing lease. Any amounts related to a modified lease are reflected as an operating lease ROU asset or related operating lease liability in our condensed consolidated balance sheet.

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.

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.

14


 

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 ASC 350. 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 it is not more likely than not that goodwill is impaired, 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 9.)

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 9.)

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. 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 values of these investments are adjusted to reflect our proportionate share of the investee's net income or loss, any unrealized gain or loss resulting from the translation of foreign-denominated financial statements into U.S. dollars, and dividends received. We use the cumulative earnings approach for classifying dividends received in the statements of cash flows. Under the cumulative earnings approach, we compare the distributions received to cumulative equity method earnings since inception. Any distributions received up to the amount of cumulative equity earnings are considered a return on investment and classified in operating activities. Any excess distributions are considered a return of capital and classified in investing activities. The basis difference between the carrying value and our proportionate share of the equity method investment's book value is primarily related to consideration paid in excess of the stepped-up basis of assets and liabilities on the date of purchase.

 

Investments in privately-held entities for which the Company has little or no influence over the investee are initially recorded at cost. Because the investments do not have a readily determinable fair value, the Company has elected to measure the investments at cost minus impairments, if any, with changes recognized in net income. If the Company identifies observable price changes in orderly transactions for an identical or a similar investment, the Company’s investment will be measured at fair value as of the date the observable transaction occurs.

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 the 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 were VIEs as of March 31, 2023 and June 30, 2022.

15


 

Other Long-Term Assets

Digital Assets

The Company has purchased certain digital assets (crypto currencies) that are held for investment purposes. The Company accounts for digital assets in accordance with Intangibles - Goodwill and Other Topic 350 of the ASC ("ASC 350"). Digital assets are shown in the other long-term assets line-item on the condensed consolidated balance sheets. Digital assets are a type of intangible asset with indefinite useful lives, which are recorded at cost less impairment. Accordingly, if the fair market value at any point during the reporting period is lower than the carrying value, an impairment loss is recorded. If the fair market value at any point during the reporting period is higher than the carrying value, the basis of the digital assets will not be adjusted to account for this increase. Gains on digital assets, if any, are recognized upon sale or disposal of the digital assets. Write downs and gains are shown in the condensed consolidated statement of income, as component of the line-item other income, net.

As of March 31, 2023 and June 30, 2022, the carrying balance of our digital assets was $0.2 million and $0.2 million respectively, which is shown net of cumulative write-downs of $0.2 million and $0.2 million, respectively. As of March 31, 2023 and June 30, 2022, the fair market value of such digital assets held was $0.2 million and $0.2 million, respectively. For the three and nine months ended March 31, 2023, the Company had insignificant write-downs on such digital assets and had no realized gains or losses related to the sale of digital assets.

Option to Acquire Additional Interest in a Long-Term Investment

On June 27, 2022, the Company acquired an additional 40% interest in Silver Gold Bull, Inc. (See Note 10.) Also included in this acquisition was an option, which is exercisable between December 2023 and September 2024, to purchase an additional 27.6% of the outstanding equity of Silver Gold Bull, Inc. to bring the Company's ownership interest up to 75.0%. As of March 31, 2023 and June 30, 2022, the fair value of the option was $5.3 million and $5.3 million, respectively.

Accumulated other comprehensive income

For the Company’s foreign-based equity method investments, the proportionate share of the investee’s income is translated into U.S. dollars at the average exchange rate for the period and the investment is translated using the exchange rate as of the end of the reporting period. Foreign currency translation gains and losses associated with this activity are deferred and included as a component of accumulated other comprehensive income in the accompanying condensed consolidated balance sheets.

Treasury Stock

The Company periodically purchases its own common stock that is traded on public markets as part of announced stock repurchase programs. The repurchased common stock is classified as treasury stock on the consolidated balance sheets and held at cost. The direct costs incurred to acquire treasury stock are treated like stock issue costs and added to the cost of the treasury stock, which includes applicable fees and taxes. There have been no reissuances of treasury stock.

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 an entity in which the Company has a controlling financial interest that is not attributable, directly or indirectly, to the Company. 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 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.

16


 

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.
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, which includes precious metals held for CyberMetals' customers. 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 shown, in the aggregate, as deferred revenue and other advances in the condensed consolidated financial statements. (See Note 11.)

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 forward contracts with credit worthy financial institutions or futures contracts traded on national futures exchanges. 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 are recorded in cost of sales.

17


 

The Company enters into forward and futures 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 and 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 12.)

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 of the ASC 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.

Interest Income

In accordance with 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 15.) Additionally, the Company amortizes capitalized loan costs to interest expense over the period of the loan agreement.

18


 

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.

Amortization of Debt Issuance Costs

Debt issuance costs incurred in connection with the issuance of the AMCF Notes have been included as a component of the carrying amount of the debt, and Trading Credit Facility debt issuance costs are included in prepaid expenses and other assets in the Company's condensed consolidated balance sheets. Debt issuance costs are amortized to interest expense over the contractual term of the debt. Debt issuance costs of the Trading Credit Facility are amortized on a straight-line basis, while all other debt issuance costs are amortized using the effective interest method. Amortization of debt issuance costs included in interest expense was $0.5 million and $0.5 million for the three months ended March 31, 2023 and 2022, respectively. Amortization of debt issuance costs included in interest expense was $1.6 million and $2.1 million for the nine months ended March 31, 2023 and 2022, respectively.

Earnings (Losses) from Equity Method Investments

The Company's proportional interest in the reported earnings and losses from equity method investments is shown on the condensed consolidated statements of income as earnings (losses) from equity method investments.

Other Income, Net

The Company's other income and expense is comprised of royalty and consulting income, which is recognized when earned.

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 $3.9 million and $3.3 million, respectively, for the three months ended March 31, 2023 and 2022. Advertising costs totaled $11.6 million and $9.1 million, respectively, for the nine months ended March 31, 2023 and 2022. 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 $6.8 million and $6.8 million, respectively, for the three months ended March 31, 2023 and 2022. Shipping and handling costs incurred totaled $20.6 million and $18.9 million, respectively, for the nine months ended March 31, 2023 and 2022.

19


 

Share-Based Compensation

The Company accounts for equity awards under the provisions of 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 17.)

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 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 13 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.

Earnings per Share ("EPS")

The Company computes and reports both basic EPS and diluted EPS using the two-class method. Basic EPS is computed by dividing net income allocated to common shares by the weighted average number of common shares outstanding for the period, excluding any participating securities. Diluted EPS is computed by dividing net income allocated to common shares adjusted for reallocation of undistributed earnings of unvested restricted shares by the weighted average number of common shares determined for the basic EPS plus the dilutive effect of common stock equivalents using the treasury stock method based on the average market price for the period.

All outstanding nonvested shares that contain non-forfeitable rights to dividends or dividend equivalents that participate in undistributed earnings with common stock are considered participating securities and are included in computing earnings per share pursuant to the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and participation rights in undistributed earnings. The Company’s vested restricted stock units are considered participating securities. The Company’s unvested restricted stock units are considered nonparticipating securities since they are forfeitable.

A reconciliation of shares used in calculating basic and diluted earnings per common share for the three and nine months ended March 31, 2023 and 2022 is presented below.

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

Nine Months Ended March 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Basic weighted-average shares of common stock outstanding

 

 

23,421

 

 

 

22,860

 

 

 

23,436

 

 

 

22,713

 

Effect of common stock equivalents

 

 

1,234

 

 

 

1,566

 

 

 

1,255

 

 

 

1,562

 

Diluted weighted-average shares outstanding

 

 

24,655

 

 

 

24,426

 

 

 

24,691

 

 

 

24,275

 

 

Actual common shares outstanding totaled 23,260,606 and 23,028,020 as of March 31, 2023 and 2022, respectively.

20


 

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 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 guidance, known as the current expected credit loss model ("CECL"), requires entities to adopt an impairment model based on expected losses rather than incurred losses. This update was effective for the Company on July 1, 2022 (for fiscal years beginning after December 15, 2022 including interim periods within those fiscal years). The FASB has issued multiple updates to ASU 2016-13 as codified in Topic 326, including ASU’s 2018-19, 2019-05, 2019-10, 2019-11, 2020-02, and 2022-02. These ASU’s have provided for various minor technical corrections and improvements to the codification as well as other transition matters. The Company does not have a history of credit losses. The adoption of this guidance did not have a material impact on the Company’s financial statements.

Recent Accounting Pronouncements Not Yet Adopted

Management does not believe that any other recently issued, but not yet effective, accounting pronouncement if currently adopted would have a material effect on the Company's condensed consolidated financial statements.

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 AMCF Notes are reported at their aggregate principal amount less unamortized original issue discount and deferred financing costs on the accompanying condensed consolidated balance sheets. The fair value of the AMCF Notes 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 AMCF Notes as of March 31, 2023 and June 30, 2022:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2023

 

 

June 30, 2022

 

 

 

Carrying Amount

 

 

Fair value

 

 

Carrying Amount

 

 

Fair value

 

AMCF Notes

 

$

94,644

 

 

$

91,441

 

 

$

94,073

 

 

$

92,398

 

 

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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. ASC 820 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 published market values attributable to the premium, 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 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, 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.

Option to Purchase Interests in a Long-term Investment. The fair value of the option to purchase additional ownership interest in Silver Gold Bull, Inc, which is exercisable between December 2023 and September 2024, was determined by an independent third-party valuation firm and was recorded as a component of other long-term assets on the condensed consolidated balance sheets. This option is classified in Level 3 of the valuation hierarchy.

22


 

The value of the option was determined using a Monte Carlo Simulation model ("MCS model"). The MCS model includes inputs based on significant assumptions related to management’s forecasts of the investee’s earnings-before-interest-taxes-depreciation-amortization ("EBITDA") and corresponding future total equity simulations, where an early exercise multiple is calibrated to maximize the fair value of the option during the exercise period. For each simulation path, option payoffs are calculated based on the contractual terms, and then discounted at the term-matched risk-free rate, where the value of the option is calculated as the average present value over all simulated paths. Refer to the 2022 Annual Report for information about the certain assumptions in the MCS model that was used to determine that valuation of the option to purchase interest in a long-term investment.

The following tables present information about the Company's assets and liabilities measured at fair value on a recurring basis as of March 31, 2023 and June 30, 2022, aggregated by each fair value hierarchy level:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2023

 

 

 

Quoted Price in Active Markets for Identical Instruments
(Level 1)

 

 

Significant Other Observable Inputs
(Level 2)

 

 

Significant Unobservable Inputs
(Level 3)

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Inventories(1)

 

$

966,564

 

 

$

 

 

$

 

 

$

966,564

 

Precious metals held under financing arrangements

 

 

24,014

 

 

 

 

 

 

 

 

 

24,014

 

Derivative assets — open sale and purchase commitments, net

 

 

56,624

 

 

 

 

 

 

 

 

 

56,624

 

Derivative assets — forward contracts

 

 

1,832

 

 

 

 

 

 

 

 

 

1,832

 

Option to purchase interest in a long-term investment

 

 

 

 

 

 

 

 

5,300

 

 

 

5,300

 

Total assets, valued at fair value

 

$

1,049,034

 

 

$

 

 

$

5,300

 

 

$

1,054,334

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities on borrowed metals

 

$

25,730

 

 

$

 

 

$

 

 

$

25,730

 

Product financing arrangements

 

 

292,104

 

 

 

 

 

 

 

 

 

292,104

 

Derivative liabilities — open sale and purchase commitments, net

 

 

10,599

 

 

 

 

 

 

 

 

 

10,599

 

Derivative liabilities — margin accounts

 

 

5,564

 

 

 

 

 

 

 

 

 

5,564

 

Derivative liabilities — futures contracts

 

 

10,071

 

 

 

 

 

 

 

 

 

10,071

 

Derivative liabilities — forward contracts

 

 

57,096

 

 

 

 

 

 

 

 

 

57,096

 

Total liabilities, valued at fair value

 

$

401,164

 

 

$

 

 

$

 

 

$

401,164

 

 

(1)
Commemorative coin inventory totaling $1.0 million is held at lower of cost or realizable value, and thus is excluded from the inventories balance shown in this table.

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2022

 

 

 

Quoted Price in Active Markets for Identical Instruments
(Level 1)

 

 

Significant Other Observable Inputs
(Level 2)

 

 

Significant Unobservable Inputs
(Level 3)

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Inventories(1)

 

$

739,584

 

 

$

 

 

$

 

 

$

739,584

 

Precious metals held under financing arrangements

 

 

79,766

 

 

 

 

 

 

 

 

 

79,766

 

Derivative assets — open sale and purchase commitments, net

 

 

27,423

 

 

 

 

 

 

 

 

 

27,423

 

Derivative assets — futures contracts

 

 

20,245

 

 

 

 

 

 

 

 

 

20,245

 

Derivative assets — forward contracts

 

 

44,075

 

 

 

 

 

 

 

 

 

44,075

 

Option to purchase interest in a long-term investment

 

 

 

 

 

 

 

 

5,300

 

 

 

5,300

 

Total assets, valued at fair value

 

$

911,093

 

 

$

 

 

$

5,300

 

 

$

916,393

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities on borrowed metals

 

$

59,417

 

 

$

 

 

$

 

 

$

59,417

 

Product financing arrangements

 

 

282,671

 

 

 

 

 

 

 

 

 

282,671

 

Derivative liabilities — open sale and purchase commitments, net

 

 

70,564

 

 

 

 

 

 

 

 

 

70,564

 

Derivative liabilities — margin accounts

 

 

4,686

 

 

 

 

 

 

 

 

 

4,686

 

Derivative liabilities — forward contracts

 

 

530

 

 

 

 

 

 

 

 

 

530

 

Total liabilities, valued at fair value

 

$

417,868

 

 

$

 

 

$

 

 

$

417,868

 

 

(1)
Commemorative coin inventory totaling $1.4 million 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.

23


 

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) digital assets, (v) goodwill, or (vi) indefinite-lived intangibles, all of which are written down to fair value when they are held for sale or determined to be impaired.

With the exception of digital assets, our 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.

The fair value of the Company's digital assets is determined quarterly in accordance with ASC 820 and is based on quoted prices on the active exchange(s) that we have determined is the principal market for such assets (Level 1 inputs). When the quoted prices on active exchanges decrease and indicate that it is more likely than not that our digital assets are impaired, we consider the lowest market price of one unit of digital asset quoted on the active exchange since acquiring the digital asset. If the then current carrying value of a digital asset exceeds the fair value so determined, an impairment loss has occurred with respect to those digital assets in the amount equal to the difference between their carrying values and the price determined. As of March 31, 2023, the carrying amounts and estimated fair values of the Company’s digital assets totaled $0.2 million and $0.2 million, respectively. As of June 30, 2022, the carrying amounts and estimated fair values of the Company’s digital assets totaled $0.2 million and $0.2 million, respectively.

4. RECEIVABLES

Receivables consisted of the following as of March 31, 2023 and June 30, 2022:

 

in thousands

 

 

 

 

 

 

 

 

March 31, 2023

 

 

June 30, 2022

 

Customer trade receivables

 

$

41,070

 

 

$

59,066

 

Wholesale trade advances

 

 

19,362

 

 

 

27,675

 

Due from brokers and other

 

 

29,644

 

 

 

10,299

 

 

 

$

90,076

 

 

$

97,040

 

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 and Other. Due from brokers and other consists of the margin requirements held at brokers related to open futures contracts (see Note 12) and other receivables.

5. SECURED LOANS RECEIVABLE

Below is a summary of the carrying value of our secured loans as of March 31, 2023 and June 30, 2022:

in thousands

 

 

 

 

 

 

 

 

March 31, 2023

 

 

June 30, 2022

 

Secured loans originated

 

$

61,617

 

 

$

44,498

 

Secured loans acquired

 

 

35,239

 

 

 

81,719

 

 

$

96,856

 

 

$

126,217

 

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.

24


 

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 March 31, 2023 and June 30, 2022, our secured loans carried weighted-average effective interest rates of 10.2% and 9.4%, 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 cards and 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.

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, (ii) numismatic and semi-numismatic and (iii) graded sports cards and sports memorabilia. The Company required LTV ratios vary with the class of loans. Typically, the Company requires an LTV ratio of approximately 75% for bullion, 65% for numismatic and semi-numismatic collateral, and 50% for graded sports cards and sports memorabilia. The LTV ratio for loans collateralized by numismatic and semi-numismatic collateral is typically lower on a percentage basis than bullion collateralized loans because a higher value of the numismatic and semi-numismatic collateral relates to its premium value, rather than its underlying commodity value. The LTV ratio for loans collateralized by graded sports cards and sports memorabilia is lower because the underlying collateral is not as liquid as bullion and numismatic and semi-numismatic collateral.

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

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2023

 

 

June 30, 2022

 

Bullion

 

$

53,445

 

 

 

55.2

%

 

$

95,691

 

 

 

75.8

%

Numismatic and semi-numismatic

 

 

41,627

 

 

 

43.0

%

 

 

30,231

 

 

 

24.0

%

Graded sports cards and sports memorabilia

 

 

1,784

 

 

 

1.8

%

 

 

295

 

 

 

0.2

%

 

$

96,856

 

 

 

100.0

%

 

$

126,217

 

 

 

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 and graded sports cards and sports memorabilia collateral values are updated by numismatic and graded sports cards and sports memorabilia specialists typically within every 90 days and when loan terms are renewed.

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 cards and sports memorabilia) underlying such loans is then sold by the Company to satisfy all amounts due under the loan.

25


 

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 an LTV ratio of less than 75% and (ii) loans with an LTV ratio of 75% or more:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2023

 

 

June 30, 2022

 

Loan-to-value of less than 75%

 

$

90,025

 

 

 

92.9

%

 

$

49,503

 

 

 

39.2

%

Loan-to-value of 75% or more

 

 

6,831

 

 

 

7.1

%

 

 

76,714

 

 

 

60.8

%

 

$

96,856

 

 

 

100.0

%

 

$

126,217

 

 

 

100.0

%

The Company had no loans with an LTV ratio in excess of 100% as of March 31, 2023 and June 30, 2022.

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 March 31, 2023 and June 30, 2022, 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 or non-performing, or if the customer is 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 and nine months ended March 31, 2023 and 2022, the Company incurred no loan impairment costs and no loans were placed on a non-accrual status.

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 March 31, 2023 and June 30, 2022:

 

in thousands

 

 

 

 

 

 

 

 

March 31, 2023

 

 

June 30, 2022

 

Inventory held for sale

 

$

506,021

 

 

$

299,844

 

Repurchase arrangements with customers

 

 

140,120

 

 

 

130,171

 

Consignment arrangements with customers

 

 

2,589

 

 

 

2,490

 

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

 

 

954

 

 

 

1,434

 

Borrowed precious metals

 

 

25,730

 

 

 

24,408

 

Product financing arrangements

 

 

292,104

 

 

 

282,671

 

 

$

967,518

 

 

$

741,018

 

 

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, or product financing arrangements. As of March 31, 2023 and June 30, 2022, inventory held for sale totaled $506.0 million and $299.8 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 March 31, 2023 and June 30, 2022, included within inventories is $140.1 million and $130.2 million, respectively, of precious metals products subject to repurchase arrangements with customers.

26


 

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 March 31, 2023 and June 30, 2022 totaled $2.6 million and $2.5 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 totaled $1.0 million and $1.4 million as of March 31, 2023 and June 30, 2022, 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 $25.7 million and $24.4 million as of March 31, 2023 and June 30, 2022, 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 $292.1 million and $282.7 million as of March 31, 2023 and June 30, 2022, respectively.

The Company mitigates market risk of its physical inventory and open commitments through commodity hedge transactions. (See Note 12.) As of March 31, 2023 and June 30, 2022, the unrealized gains (losses) resulting from the difference between market value and cost of physical inventory were $38.4 million and $(15.4) million, respectively.

Premium Component of Inventory

The premium component, at market value, included in the inventory as of March 31, 2023 and June 30, 2022 totaled $30.9 million and $27.1 million, respectively.

 

7. LEASES

As of March 31, 2023 and June 30, 2022, the balances of operating lease right of use assets were $5.4 million and $6.5 million respectively. Components of operating lease expense for the three and nine months ended March 31, 2023 and 2022 were as follows:

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

Nine Months Ended March 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Operating lease costs

 

$

366

 

 

$

347

 

 

$

1,094

 

 

$

1,181

 

Variable lease costs

 

 

148

 

 

 

143

 

 

 

367

 

 

 

379

 

Short term lease costs

 

 

29

 

 

 

23

 

 

 

78

 

 

 

70

 

Finance lease costs

 

 

 

 

 

6

 

 

 

 

 

 

16

 

 

$

543

 

 

$

519

 

 

$

1,539

 

 

$

1,646

 

 

27


 

For the nine months ended March 31, 2023, we made cash payments of $1.2 million for operating lease obligations. These payments are included in operating cash flows. As of March 31, 2023, the weighted-average remaining lease term under our capitalized operating leases was 4.9 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 March 31, 2023 (in thousands):

Year ending June 30,

 

Operating Leases

 

 

2023 (remainder of year)

 

$

408

 

 

2024

 

 

1,624

 

 

2025

 

 

1,599

 

 

2026

 

 

1,171

 

 

2027

 

 

823

 

 

Thereafter

 

 

1,326

 

 

Total lease payments

 

 

6,951

 

 

Imputed interest

 

 

(811

)

 

Total operating lease liability

 

$

6,140

 

(1)

Operating lease liability - current

 

$

1,338

 

(2)

Operating lease liability - long-term

 

 

4,802

 

(3)

 

$

6,140

 

(1)

 

(1)
Represents the present value of the capitalized operating lease liabilities as of March 31, 2023.
(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 one related party lease; for information on this lease refer to Note 16.

 

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.

8. PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consisted of the following at March 31, 2023 and June 30, 2022:

in thousands

 

 

 

 

 

 

 

 

March 31, 2023

 

 

June 30, 2022

 

Computer software

 

$

7,282

 

 

$

6,519

 

Plant equipment

 

 

7,534

 

 

 

6,328

 

Leasehold improvements

 

 

3,968

 

 

 

3,863

 

Office furniture, and fixtures

 

 

2,784

 

 

 

2,536

 

Computer equipment

 

 

1,590

 

 

 

1,595

 

Building

 

 

636

 

 

 

509

 

Total depreciable assets

 

 

23,794

 

 

 

21,350

 

Less: Accumulated depreciation and amortization

 

 

(12,962

)

 

 

(11,932

)

Property and equipment not placed in service

 

 

235

 

 

 

391

 

Land

 

 

406

 

 

 

36

 

Property, plant, and equipment, net

 

$

11,473

 

 

$

9,845

 

Property, plant and equipment depreciation and amortization expense for the three months ended March 31, 2023 and 2022 was $0.6 million and $0.4 million, respectively. Property, plant and equipment depreciation and amortization expense for the nine months ended March 31, 2023 and 2022 was $1.6 million and $1.1 million, respectively. For the periods presented, depreciation and amortization expense allocable to cost of sales was not significant.

9. 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 Company's formation of 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.

28


 

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.
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.
In October 2022, JMB acquired $4.5 million of intangible assets that included: BGASC’s website, domain name, trademarks, logos, customer list, and all intellectual property.

Carrying Value

The carrying value of goodwill and other purchased intangibles as of March 31, 2023 and June 30, 2022 was as described below:

dollar amounts in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2023

 

 

June 30, 2022

 

 

 

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

 

2.5

 

$

55,541

 

 

$

(45,001

)

 

$

 

 

$

10,540

 

 

$

53,498

 

 

$

(38,831

)

 

$

 

 

$

14,667

 

Developed technology

 

4

 

2.1

 

 

10,982

 

 

 

(5,390

)

 

 

 

 

 

5,592

 

 

 

10,500

 

 

 

(3,366

)

 

 

 

 

 

7,134

 

Non-compete and other

 

3 - 5

 

4.5

 

 

2,310

 

 

 

(2,300

)

 

 

 

 

 

10

 

 

 

2,300

 

 

 

(2,300

)

 

 

 

 

 

 

Employment agreement

 

1 - 3

 

0

 

 

295

 

 

 

(295

)

 

 

 

 

 

 

 

 

295

 

 

 

(295

)

 

 

 

 

 

 

Intangibles subject to amortization

 

 

69,128

 

 

 

(52,986

)

 

 

 

 

 

16,142

 

 

 

66,593

 

 

 

(44,792

)

 

 

 

 

 

21,801

 

Tradenames and trademarks

 

Indefinite

 

Indefinite

 

 

49,429

 

 

 

 

 

 

(1,290

)

 

 

48,139

 

 

 

47,454

 

 

 

 

 

 

(1,290

)

 

 

46,164

 

Identifiable intangible assets

 

$

118,557

 

 

$

(52,986

)

 

$

(1,290

)

 

$

64,281

 

 

$

114,047

 

 

$

(44,792

)

 

$

(1,290

)

 

$

67,965

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 March 31, 2023 and 2022 was $2.7 million and $7.2 million, respectively. Amortization expense related to the Company's intangible assets for the nine months ended March 31, 2023 and 2022 was $8.2 million and $22.9 million, respectively. For the presented periods, amortization expense allocable to cost of sales was not significant.

Impairment

We recorded a non-recurring impairment charge of $2.7 million (goodwill and indefinite-lived intangible assets) in fiscal 2018 related to Goldline. Other than the impairment charge related to Goldline, we have not recorded any impairment of goodwill or indefinite-lived intangible assets.

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

 

2023 (remainder of year)

 

$

2,147

 

2024

 

 

8,015

 

2025

 

 

4,874

 

2026

 

 

681

 

2027

 

 

233

 

Thereafter

 

 

192

 

 

$

16,142

 

 

 

29


 

10. LONG-TERM INVESTMENTS

As of March 31, 2023, the Company had six investments in privately-held entities. The following table shows the carrying value and ownership percentage of the Company's investment in each entity:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2023

 

 

June 30, 2022

 

Investee (1)

 

Carrying
Value

 

 

Ownership
Percentage

 

 

Carrying
Value

 

 

Ownership
Percentage

 

Silver Gold Bull, Inc.

 

$

42,377

 

 

 

47.4

%

 

$

41,251

 

 

 

47.4

%

Pinehurst Coin Exchange, Inc.

 

 

15,049

 

 

 

49.0

%

 

 

13,843

 

 

 

49.0

%

Sunshine Minting, Inc.

 

 

16,448

 

 

 

44.9

%

 

 

13,497

 

 

 

44.9

%

Company A

 

 

233

 

 

 

33.3

%

 

 

233

 

 

 

33.3

%

Company B

 

 

2,007

 

 

 

50.0

%

 

 

2,004

 

 

 

50.0

%

Texas Precious Metals, LLC

 

 

4,881

 

 

 

12.0

%

 

 

 

 

 

%

 

$

80,995

 

 

 

 

 

$

70,828

 

 

 

 

 

(1)
All of the Company's investees are accounted for using the equity method, with the exception of Company A, which is accounted for using the cost method.

 

We consider all of our equity method investees to be related parties. See Note 14 for a summary of the Company's aggregate balances and activity with these related party entities. Our investment in Company A is a recognized as a cost method investment and is not considered a related party.

11. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES

Accounts payable and other current liabilities consisted of the following:

 

in thousands

 

 

 

 

 

 

 

 

March 31, 2023

 

 

June 30, 2022

 

Trade payables to customers

 

$

6,809

 

 

$

2,571

 

Other accounts payable

 

 

3,355

 

 

 

3,556

 

Accounts payable and other payables

 

$

10,164

 

 

$

6,127

 

 

 

 

 

 

 

Deferred revenue

 

$

35,882

 

 

$

17,456

 

Advances from customers

 

 

217,806

 

 

 

158,089

 

Deferred revenue and other advances

 

$

253,688

 

 

$

175,545

 

 

12. 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 ASC 815, 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 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.

30


 

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 fluctuations in market value, resulting from changes in the underlying commodity 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.

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 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.

The Company's policy is to substantially hedge its inventory position, net of open sale and purchase commitments that are subject to price risk, and regularly enters into precious metals commodity forward and futures contracts with financial institutions to hedge against this risk. The Company uses futures contracts, which typically settle within 30 days, for its shorter-term hedge positions, and forward contracts, which may remain open for up to 6 months, for its longer-term hedge positions. 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 metal 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 also include 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. The aggregate gross and net derivative receivables and payables balances by contract type and type of hedge, as of March 31, 2023 and June 30, 2022 were as follows:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2023

 

 

June 30, 2022

 

 

 

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

 

$

70,155

 

 

$

(13,531

)

 

$

 

 

$

56,624

 

 

$

34,821

 

 

$

(7,398

)

 

$

 

 

$

27,423

 

Future contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,245

 

 

 

 

 

 

 

 

 

20,245

 

Forward contracts

 

 

1,832

 

 

 

 

 

 

 

 

 

1,832

 

 

 

44,075

 

 

 

 

 

 

 

 

 

44,075

 

 

$

71,987

 

 

$

(13,531

)

 

$

 

 

$

58,456

 

 

$

99,141

 

 

$

(7,398

)

 

$

 

 

$

91,743

 

Nettable derivative liabilities:

 

 

 

Open sale and purchase commitments

 

$

14,117

 

 

$

(3,518

)

 

$

 

 

$

10,599

 

 

$

72,937

 

 

$

(2,373

)

 

$

 

 

$

70,564

 

Margin accounts

 

 

21,873

 

 

 

 

 

 

(16,309

)

 

 

5,564

 

 

 

26,984

 

 

 

 

 

 

(22,298

)

 

 

4,686

 

Future contracts

 

 

10,071

 

 

 

 

 

 

 

 

 

10,071

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward contracts

 

 

57,096

 

 

 

 

 

 

 

 

 

57,096

 

 

 

530

 

 

 

 

 

 

 

 

 

530

 

 

$

103,157

 

 

$

(3,518

)

 

$

(16,309

)

 

$

83,330

 

 

$

100,451

 

 

$

(2,373

)

 

$

(22,298

)

 

$

75,780

 

 

Gains or Losses on Derivative Instruments

The Company records the derivative at the trade date with a corresponding unrealized gains or 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 are recorded in cost of sales.

31


 

Below is a summary of the net gains (losses) on derivative instruments for the three and nine months ended March 31, 2023 and 2022:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

Nine Months Ended March 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Gains (losses) on derivative instruments:

 

 

 

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

 

$

36,654

 

 

$

23,411

 

 

$

(39,907

)

 

$

(34,694

)

Realized gains (losses) on future commodity contracts, net

 

 

12,826

 

 

 

(16,457

)

 

 

44,007

 

 

 

26,355

 

 

 

$

49,480

 

 

$

6,954

 

 

$

4,100

 

 

$

(8,339

)

 

The Company’s net gains (losses) on derivative instruments, as shown in the table above, were substantially offset by the changes in the fair market value of the underlying precious metals inventory, 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 was subject to price risk as of March 31, 2023 and June 30, 2022:

 

in thousands

 

 

 

 

 

 

 

 

March 31, 2023

 

 

June 30, 2022

 

Inventories

 

$

967,518

 

 

$

741,018

 

Precious metals held under financing arrangements

 

 

24,014

 

 

 

79,766

 

 

 

991,532

 

 

 

820,784

 

Less unhedgeable inventories:

 

 

 

 

 

 

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

 

 

(954

)

 

 

(1,434

)

Premium on metals position

 

 

(30,865

)

 

 

(27,059

)

Precious metal value not hedged

 

 

(31,819

)

 

 

(28,493

)

 

 

 

 

 

 

Commitments at market:

 

 

 

 

 

 

Open inventory purchase commitments

 

 

1,075,916

 

 

 

681,835

 

Open inventory sales commitments

 

 

(753,815

)

 

 

(497,949

)

Margin sale commitments

 

 

(21,873

)

 

 

(26,984

)

In-transit inventory no longer subject to market risk

 

 

(26,449

)

 

 

(13,164

)

Unhedgeable premiums on open commitment positions

 

 

20,568

 

 

 

12,933

 

Borrowed precious metals

 

 

(25,730

)

 

 

(59,417

)

Product financing arrangements

 

 

(292,104

)

 

 

(282,671

)

Advances on industrial metals

 

 

1,234

 

 

 

768

 

 

 

(22,253

)

 

 

(184,649

)

 

 

 

 

 

 

Precious metal subject to price risk

 

 

937,460

 

 

 

607,642

 

 

 

 

 

 

 

Precious metal subject to derivative financial instruments:

 

 

 

 

 

 

Precious metals forward contracts at market values

 

 

741,100

 

 

 

278,326

 

Precious metals futures contracts at market values

 

 

176,493

 

 

 

326,713

 

Total market value of derivative financial instruments

 

 

917,593

 

 

 

605,039

 

 

 

 

 

 

 

Net precious metals subject to commodity price risk

 

$

19,867

 

 

$

2,603

 

 

Net precious metals subject to commodity price risk at March 31, 2023 includes the impact of projected sales activity between market close on March 31, 2023 and market opening on the next business day.

32


 

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 March 31, 2023 and June 30, 2022, the Company had the following outstanding commitments and open forward and future contracts:

 

in thousands

 

 

 

 

 

 

 

 

March 31, 2023

 

 

June 30, 2022

 

Purchase commitments

 

$

1,075,916

 

 

$

681,835

 

Sales commitments

 

$

(753,815

)

 

$

(497,949

)

Margin sales commitments

 

$

(21,873

)

 

$

(26,984

)

Open forward contracts

 

$

741,100

 

 

$

278,326

 

Open futures contracts

 

$

176,493

 

 

$

326,713

 

 

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. On March 31, 2023, 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.

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 were as follows:

 

in thousands

 

 

 

 

 

 

 

 

March 31, 2023

 

 

June 30, 2022

 

Foreign exchange forward contracts

 

$

9,596

 

 

$

9,738

 

Open sale and purchase commitment transactions, net

 

$

8,963

 

 

$

10,371

 

 

13. INCOME TAXES

Net income from operations before provision for income taxes for the three and nine months ended March 31, 2023 and 2022 is shown below:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

Nine Months Ended March 31,

 

 

 

2023

 

 

 

2022

 

 

2023

 

 

 

2022

 

U.S.

 

$

45,766

 

 

 

$

45,919

 

 

$

146,895

 

 

 

$

119,380

 

Foreign

 

 

7

 

 

 

 

2

 

 

 

33

 

 

 

 

26

 

 

$

45,773

 

 

 

$

45,921

 

 

$

146,928

 

 

 

$

119,406

 

 

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 and nine months ended March 31, 2023 and 2022 are shown below:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

Nine Months Ended March 31,

 

 

 

2023

 

 

 

2022

 

 

2023

 

 

 

2022

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

9,171

 

 

 

$

7,579

 

 

$

29,074

 

 

 

$

21,066

 

State and local

 

 

606

 

 

 

 

790

 

 

 

3,000

 

 

 

 

2,714

 

Foreign

 

 

(2

)

 

 

 

6

 

 

 

22

 

 

 

 

17

 

Income tax expense

 

$

9,775

 

 

 

$

8,375

 

 

$

32,096

 

 

 

$

23,797

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective income tax rate

 

 

21.4

%

 

 

 

18.2

%

 

 

21.8

%

 

 

 

19.9

%

For the three and nine months ended March 31, 2023, our effective tax rate differs from the federal statutory rate primarily due to the foreign derived intangible income special deduction, the excess tax benefit from share-based compensation, partially offset by

33


 

Section 162(m) executive compensation disallowance and state taxes (net of federal tax benefit). For the three and nine months ended March 31, 2022, our effective tax rate differs from the federal statutory rate primarily due to foreign derived intangible income special deduction, the excess tax benefit from share-based compensation, partially offset by state taxes (net of federal tax benefit), and other normal course non-deductible expenditures.

Income Taxes Receivable and Payable

As of March 31, 2023 and June 30, 2022, income tax receivable totaled $0.9 million and $0.0 million, respectively. As of March 31, 2023 and June 30, 2022, income tax payable totaled $0.0 million and $0.4 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 March 31, 2023 and June 30, 2022, 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 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 March 31, 2023, 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 $0.8 million and a federal deferred tax liability of $14.0 million. As of June 30, 2022, 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 $0.9 million and a federal deferred tax liability of $14.5 million.

Net Operating Loss Carryforwards

As of March 31, 2023 and June 30, 2022, the Company has approximately $12.2 million and $12.2 million of state net operating loss carryforwards, respectively. The Company's state tax-effected net operating loss carryforwards totaled $0.9 million and $0.9 million, as of March 31, 2023 and June 30, 2022, respectively. These state 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 as 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. As of March 31, 2023, there have been no material changes to our unrecognized tax benefits or any related interest or penalties since June 30, 2022.

Related parties include entities which the Company controls or has the ability to significantly influence, and entities which are under common control with the Company. 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"). 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.

34


 

2)
Equity method investees. As of March 31, 2023, the Company has five investments in privately-held entities which have been determined to be equity method investees and related parties.

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 March 31, 2023 and June 30, 2022, the Company had related party receivables and payables balances as set forth below:

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2023

 

June 30, 2022

 

 

Receivables

 

Payables

 

Receivables

 

Payables

Stack's Bowers Galleries

 

$

164

 

 (1)

 

$

 

 

 

$

 

 

 

$

1,802

 

 (3)

Equity method investees

 

 

1,456

 

 (1)

 

 

4,074

 

 (2)

 

 

3,060

 

 (1)

 

 

173

 

 (3)

 

$

1,620

 

 

 

$

4,074

 

 

 

$

3,060

 

 

 

$

1,975

 

 

 

(1)
Balance includes trade receivables and other receivables, net
(2)
Balance includes note payables, trade payables, and other payables, net
(3)
Balance primarily represents trade payables and other payables, net

Long-term Investments

As of March 31, 2023 and June 30, 2022, the aggregate carrying balance of the equity method investments was $80.8 million and $70.6 million respectively. (See Note 10.)

Long-term Other Assets

As of March 31, 2023 and June 30, 2022, the fair value of the option to purchase an additional 27.6% ownership interest in Silver Gold Bull, Inc. was $5.3 million and $5.3 million, respectively. This option was acquired in June 2022, in conjunction with the Company’s acquisition of an additional 40% ownership interest in Silver Gold Bull, Inc., and is exercisable between December 2023 and September 2024. (See Note 10.)

Notes Payable

On April 1, 2021, CCP entered into a loan agreement ("CCP Note") with CFC, which provides CFC with up to $4.0 million to fund commercial loans secured by graded sports cards and sports memorabilia to its borrowers. All loans to be funded using the proceeds from the CCP Note are subject to CCP’s prior written approval. The term of the CCP Note expires on April 1, 2024 and may be extended by mutual agreement. As of March 31, 2023 and June 30, 2022 the outstanding principal balance of the CCP Note was $1.8 million and $0.0 million.

Activity with Related Parties

Sales and Purchases

During the three and nine months ended March 31, 2023 and 2022, the Company made sales and purchases to various companies, which have been deemed to be related parties, as follows:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

Nine Months Ended March 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

Sales

 

 

Purchases

 

 

Sales

 

 

Purchases

 

 

Sales

 

 

Purchases

 

 

Sales

 

 

Purchases

 

Stack's Bowers Galleries

 

$

33,723

 

 

$

6,337

 

 

$

55,519

 

 

$

12,569

 

 

$

97,978

 

 

$

22,441

 

 

$

69,170

 

 

$

41,879

 

Equity method investees

 

 

282,833

 

 

 

13,915

 

 

 

244,147

 

 

 

8,170

 

 

 

703,548

 

 

 

29,023

 

 

 

531,130

 

 

 

30,438

 

 

$

316,556

 

 

$

20,252

 

 

$

299,666

 

 

$

20,739

 

 

$

801,526

 

 

$

51,464

 

 

$

600,300

 

 

$

72,317

 

 

35


 

Interest Income

During the three and nine months ended March 31, 2023 and 2022, the Company earned interest income related to loans made to Stack's Bower Galleries and from financing arrangements (including repurchase agreements) with affiliated companies, as set forth below:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

Nine Months Ended March 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Interest income from secured loans receivables

 

$

 

 

$

44

 

 

$

 

 

$

143

 

Interest income from finance products and repurchase arrangements

 

 

2,275

 

 

 

1,576

 

 

 

5,708

 

 

 

5,537

 

 

$

2,275

 

 

$

1,620

 

 

$

5,708

 

 

$

5,680

 

Selling, General, and Administrative

During the three months ended March 31, 2023 and 2022, the Company incurred selling general, and administrative expense related to its subleasing agreement with Stack's Bower Galleries that totaled $12,000 and $0, respectively.

During the nine months ended March 31, 2023 and 2022, the Company incurred selling, general, and administrative expense related to its subleasing agreement with Stack's Bower Galleries that that totaled $22,000 and $0, respectively.

Interest Expense

During the three months ended March 31, 2023 and 2022, the Company incurred interest expense related to its note with CCP that totaled $9,000 and $0, respectively. During the nine months ended March 31, 2023 and 2022, the Company incurred interest expense related to its note with CCP that totaled $32,000 and $0, respectively.

Equity Method Investments — Earnings and Dividends Received

During the three months ended March 31, 2023 and 2022, the Company's proportional share of our equity method investee's earnings were net losses of $0.1 million and net income of $1.6 million, respectively. During the nine months ended March 31, 2023 and 2022, the Company's proportional share of our equity method investee's net income totaled $7.3 million and $4.3 million, respectively.

During the three months ended March 31, 2023 and 2022, the Company received no dividend payments from our equity method investees. During the nine months ended March 31, 2023 and 2022, the Company received dividend payments that totaled, in the aggregate, $0.6 million and $0.0 million, respectively, from our equity method investees.

Other Income

During the three months ended March 31, 2023 and 2022, the Company earned royalty income related to one of CFC's secured lending agreements and information technology consulting services income from Stack's Bower Galleries that totaled $0.6 million and $0.5 million, respectively, and $2.0 million and $1.4 million during the nine months ended March 31, 2023 and 2022, respectively.

15. FINANCING AGREEMENTS

Lines of credit - Trading Credit Facility

On December 21, 2021, the Company entered into a new three-year committed facility provided by a syndicate of financial institutions (the “Trading Credit Facility”), with a total current revolving commitment of up to $350.0 million and with a termination date of December 21, 2024. The Trading Credit Facility is secured by substantially all of the Company’s assets on a first priority basis and is guaranteed by all of the Company's subsidiaries, with the exception of AMCF. The Trading Credit Facility currently bears interest at the daily SOFR rate plus an applicable margin of 236 basis points. As of March 31, 2023, the interest rate was approximately 7.2%. The daily SOFR rate was approximately 4.9% as of March 31, 2023.

Also on December 21, 2021, in connection with entry into the Trading Credit Facility, all amounts outstanding under the Company’s uncommitted demand borrowing facility with a syndicate of banks (the "Prior Credit Facility”) were paid in full, and the Prior Trading Credit Facility was terminated. The amounts set forth in our condensed consolidated financial statements for all periods prior to December 21, 2021 refer to the Prior Credit Facility.

The Trading Credit Facility provides the Company with the liquidity to buy and sell billions of dollars of precious metals annually. A-Mark routinely uses funds drawn under the Trading Credit Facility to purchase metals from its suppliers and for operating cash flow purposes. Our CFC subsidiary also uses the funds drawn under the Trading Credit Facility to finance certain of its lending activities.

36


 

Borrowings totaled $230.0 million and $215.0 million at March 31, 2023 and June 30, 2022, 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 $120.0 million and $122.0 million as determined on March 31, 2023 and June 30, 2022, respectively. As of March 31, 2023 and June 30, 2022, the remaining unamortized balance of loan costs was approximately $2.8 million and $3.4 million, respectively.

The Trading Credit Facility contains various covenants, all of which the Company was in compliance with as of March 31, 2023.

Although the Trading Credit Facility is a committed facility, lenders holding at least 66.67% of the revolving commitments under the Trading Credit Facility may require us to repay all outstanding indebtedness under the Trading Credit Facility at any time, even if we are in compliance with the financial and other covenants under the Trading Credit Facility. After such demand, each lender with a revolving loan commitment may, but is not obligated to, make revolving loans until the termination date of the Trading Credit Facility.

Interest expense related to the Company’s Trading Credit Facility totaled $5.1 million and $1.9 million, which represents 54.8% and 34.7% of the total interest expense recognized, for the three months ended March 31, 2023 and 2022, respectively. The Trading Credit Facility carried a daily weighted average effective interest rate of 7.46% and 3.18%, respectively, for the three months ended March 31, 2023 and 2022.

Interest expense related to the Company’s Trading Credit Facility totaled $11.1 million and $6.2 million, which represents 49.0% and 37.9% of the total interest expense recognized, for the nine months ended March 31, 2023 and 2022, respectively. The Trading Credit Facility carried a daily weighted average effective interest rate of 6.79% and 3.42%, respectively, for the nine months ended March 31, 2023 and 2022.

Notes Payable - AMCF Notes

In September 2018, AM Capital Funding, LLC (“AMCF”), a wholly owned subsidiary of CFC, completed an issuance of Secured Senior Term Notes (collectively, the "AMCF 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”) 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 AMCF Notes have a maturity date of December 15, 2023. The AMCF 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 of 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.

As of March 31, 2023, the condensed consolidated carrying balance of the AMCF Notes was $94.6 million (which excludes the $5.0 million note that the Company retained), and the remaining unamortized loan cost balance was approximately $0.4 million. As of March 31, 2023, the balance of the interest payable was $0.2 million. Interest on the AMCF Notes is payable monthly in arrears at the aggregate rate of 5.26% per annum.

For the three months ended March 31, 2023 and 2022, the interest expense related to the AMCF Notes (including loan amortization costs) totaled $1.4 million and $1.5 million, which represents 14.7% and 26.7% of the total interest expense recognized by the Company, respectively. For the three months ended March 31, 2023 and 2022, the AMCF Notes' weighted average effective interest rate was 5.88% and 5.88%, respectively.

For the nine months ended March 31, 2023 and 2022, the interest expense related to the AMCF Notes (including loan amortization costs) totaled $4.3 million and $4.3 million, which represents 19.0% and 26.6% of the total interest expense recognized by the Company, respectively. For the nine months ended March 31, 2023 and 2022, the AMCF Notes' weighted average effective interest rate was 5.88% and 5.88%, respectively.

Notes Payable — Related Party

See Note 14.

37


 

Liabilities on Borrowed Metals

The Company recorded liabilities on borrowed metals with market values totaling $25.7 million as of March 31, 2023, with corresponding metals totaling $0.0 million and $25.7 million included in precious metals held under financing arrangements and inventories, respectively, on the condensed consolidated March 31, 2023 balance sheet. The Company recorded liabilities on borrowed metals with market values totaling $59.4 million as of June 30, 2022 with corresponding metals totaling $35.0 million and $24.4 million included in precious metals held under financing arrangements and inventories, respectively, on the condensed consolidated June 30, 2022 balance sheet.

For the three months ended March 31, 2023 and 2022, the interest expense related to liabilities on borrowed metals totaled $0.5 million and $0.4 million, which represents 4.9% and 6.4% of the total interest expense recognized by the Company, respectively. For the nine months ended March 31, 2023 and 2022, the interest expense related to liabilities on borrowed metals totaled $1.3 million and $0.9 million, which represents 5.9% and 5.8% of the total interest expense recognized by the Company, respectively.

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 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 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 $292.1 million and $282.7 million as of March 31, 2023 and June 30, 2022, respectively.

For the three months ended March 31, 2023 and 2022, the interest expense related to product financing arrangements totaled $2.0 million and $1.1 million, which represents 22.2% and 20.8% of the total interest expense recognized by the Company, respectively. For the nine months ended March 31, 2023 and 2022, the interest expense related to product financing arrangements totaled $4.9 million and $3.1 million, which represents 21.7% and 19.3% of the total interest expense recognized by the Company, respectively.

16. COMMITMENTS AND CONTINGENCIES

Refer to Note 16 of the Notes to Consolidated Financial Statements in the 2022 Annual Report for information relating to employment contracts and other commitments. The Company is not aware of any material changes to commitments as summarized in the 2022 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.

Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on current information, including our assessment of the merits of the particular claim, we do not expect that these legal proceedings or claims will have any material adverse impact on our future consolidated financial position, results of operations, or cash flows.

38


 

In accordance with U.S. GAAP, we review the need to accrue for any loss contingency and establish a liability 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. We do not believe that the resolution of any currently pending lawsuits, claims and proceedings, either individually or in the aggregate, will have a material adverse effect on financial position, results of operations or liquidity. However, the outcomes of any currently pending lawsuits, claims and proceedings cannot be predicted, and therefore, there can be no assurance that this will be the case.

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.

17. 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 $150.0 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 of common stock in March 2021, approximately $69.5 million of securities remain available for issuance under this shelf registration statement. Securities may be offered or sold under this registration statement until March 2024.

Dividends

On August 18, 2022, the Company's board of directors declared a non-recurring special dividend of $1.00 per common share to stockholders of record at the close of business on September 12, 2022. The dividend was paid on September 26, 2022 and totaled $23.4 million.

On August 18, 2022, the Company's board of directors also declared the initial quarterly regular cash dividend of $0.20 per common share to stockholders of record at the close of business on October 10, 2022. The dividend was paid on October 24, 2022 and totaled $4.7 million.

On January 4, 2023, the Company's board of directors declared a regular dividend of $0.20 per share to stockholders of record at the close of business on January 16, 2023. The dividend was paid on January 27, 2023 and totaled $4.7 million.

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 1,000,000 shares (as adjusted for the two-for-one split of A-Mark’s common stock in the form of a stock dividend in fiscal 2022) of its common stock. The share repurchase program was initially announced on May 8, 2018. Pursuant to the share repurchase program, which was re-authorized effective as of December 8, 2022, we may repurchase shares of our common stock from time to time at prevailing market prices, depending on market conditions, through open market or privately negotiated transactions. The authorization of the share repurchase program expires on June 30, 2023. Subject to applicable corporate securities laws, repurchases may be made at such times and in amounts as management deems appropriate. We are not obligated to repurchase any shares under the program, and repurchases under the program may be discontinued if management determines that additional repurchases are not warranted. As of March 31, 2023, we repurchased a total of 335,735 shares under the program for $9.8 million. As of June 30, 2022, no shares had been repurchased under our share repurchase program.

2014 Stock Award and Incentive Plan

The Company's amended and restated 2014 Stock Award and Incentive Plan (the "2014 Plan") was approved most recently on October 27, 2022 by the Company's stockholders. As of March 31, 2023, 1,514,420 stock options and 88,426 restricted stock units were outstanding, and 1,746,728 shares were available for issuance of new awards under the 2014 Plan.

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, other stock-based awards (which may include outright grants of shares) and cash incentive awards. The 2014 Plan also authorizes grants of awards with performance-based conditions and market-based conditions. 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.

39


 

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 in any fiscal year to 500,000 shares plus the participant's unused annual limit at the close of the previous 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 October 27, 2032.

Stock Options

The Company uses the Black-Scholes option pricing model, which uses various inputs such as the common share price and estimates that include the risk-free interest rate, volatility, expected life and dividend yield. As of March 31, 2023 there were no stock options outstanding with performance conditions or other types of awards with market conditions.

During the three months ended March 31, 2023 and 2022, the Company incurred $0.3 million and $0.3 million of compensation expense related to stock options, respectively. During the nine months ended March 31, 2023 and 2022, the Company incurred $0.9 million and $1.0 million of compensation expense related to stock options, respectively. As of March 31, 2023, there was total remaining compensation expense of $1.1 million related to employee stock options, which will be recorded over a weighted average vesting period of approximately 1.0 years.

A required adjustment to outstanding stock options was triggered as a result of the non-recurring special dividend declared on August 18, 2022. 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 $1.00 per option share, effective as of the ex-dividend date (September 9, 2022). The fair value of the options before and after this event was unchanged, and therefore no incremental stock-based compensation expense was recorded.

The following table summarizes the stock option activity for the nine months ended March 31, 2023:

 

 

Options

 

 

Weighted Average Exercise Price Per Share

 

 

Aggregate
Intrinsic Value
(in thousands)

 

 

Weighted Average Grant Date Fair Value Per Award

 

Outstanding at June 30, 2022

 

 

1,779,460

 

 

$

7.84

 

 

$

43,433

 

 

$

3.51

 

Granted

 

 

10,000

 

 

$

39.69

 

 

 

 

 

 

 

Exercised

 

 

(275,040

)

 

$

6.67

 

 

 

 

 

 

 

Outstanding at March 31, 2023

 

 

1,514,420

 

 

$

7.09

 

 

$

41,786

 

 

$

3.57

 

Exercisable at March 31, 2023

 

 

981,931

 

 

$

5.70

 

 

$

28,429

 

 

$

2.75

 

The following table summarizes the status of stock options outstanding as of March 31, 2023:

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

 

$

 

 

$

5.00

 

 

 

710,858

 

 

 

6.48

 

 

$

1.91

 

 

 

449,038

 

 

 

6.30

 

 

$

2.21

 

$

5.01

 

 

$

7.50

 

 

 

84,894

 

 

 

3.66

 

 

$

5.98

 

 

 

84,894

 

 

 

3.66

 

 

$

5.98

 

$

7.51

 

 

$

12.50

 

 

 

453,334

 

 

 

3.43

 

 

$

8.88

 

 

 

426,666

 

 

 

3.18

 

 

$

8.86

 

$

12.51

 

 

$

30.00

 

 

 

255,334

 

 

 

7.94

 

 

$

17.42

 

 

 

21,333

 

 

 

7.73

 

 

$

14.77

 

$

30.01

 

 

$

50.00

 

 

 

10,000

 

 

 

9.85

 

 

$

39.69

 

 

 

 

 

 

 

 

$

 

 

 

 

 

 

 

1,514,420

 

 

 

5.68

 

 

$

7.09

 

 

 

981,931

 

 

 

4.75

 

 

$

5.70

 

The following table summarizes the nonvested stock option activity for the nine months ended March 31, 2023.

 

 

Options

 

 

 

Weighted Average Grant Date Fair Value Per Award

 

Nonvested Outstanding at June 30, 2022

 

 

631,488

 

 

 

$

5.06

 

Granted

 

 

10,000

 

 

 

$

16.56

 

Vested

 

 

(108,999

)

 

 

$

6.06

 

Forfeitures

 

 

 

 

 

$

 

Nonvested Outstanding at March 31, 2023

 

 

532,489

 

 

 

$

5.07

 

 

40


 

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 or at a specified date after vesting.

A required adjustment to certain outstanding RSUs was triggered as a result of the non-recurring special dividend declared on August 18, 2022. In accordance with the terms of the Company’s RSU agreements under which the RSUs were issued, the holders of the RSUs were entitled to credits equivalent to dividends that would have been paid if the RSUs had been outstanding shares as of the applicable record date (such credits being either in cash or additional RSUs). The fair values of these RSUs before and after the dividend payment dates were unchanged, and therefore no incremental stock-based compensation expense was recorded.

During the three months ended March 31, 2023 and 2022, the Company incurred $0.2 million and $0.2 million of compensation expense related to RSUs, respectively. During the nine months ended March 31, 2023 and 2022, the Company incurred $0.7 million and $0.6 million of compensation expense related to RSUs, respectively. As of March 31, 2023, there is $1.2 million remaining compensation expense related to RSUs, which will be recorded over a weighted average vesting period of approximately 1.9 years. RSUs granted to a non-US citizen are referred to as "deferred stock units" or "DSUs".

The following table summarizes the RSU activity for the nine months ended March 31, 2023:

 

 

Awards
Outstanding

 

 

 

Weighted Average Fair Value per Unit at Grant Date

 

 

Nonvested Outstanding at June 30, 2022

 

 

56,093

 

 

 

$

32.58

 

 

Granted

 

 

16,435

 

 

 

$

29.21

 

 

Vested & delivered

 

 

(3,296

)

 

 

$

36.38

 

 

Vested & deferred (1)

 

 

(10,147

)

 

 

$

35.46

 

 

Nonvested Outstanding at March 31, 2023

 

 

59,085

 

 

 

$

30.93

 

 

Vested but subject to deferred settlement at March 31, 2023 (1)

 

 

29,341

 

 

 

$

24.53

 

 

Outstanding at March 31, 2023

 

 

88,426

 

 

 

$

28.81

 

 

 

(1) Certain RSU holders elected to defer settlement of the RSUs to a specified date. The DSU holder is contractually obligated to defer settlement of the DSUs to a specified date following the holder’s termination of service.

Common Stock

In fiscal 2023, a portion of the fiscal 2022 annual bonuses was paid in the form of common stock to the Chief Executive Officer and President. The Company issued 10,500 shares (in the aggregate) of common stock, after deducting 3,184 shares of common stock to satisfy tax withholding obligations relating to the President's award.

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 of directors. 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.

18. CUSTOMER AND SUPPLIER CONCENTRATIONS

Customer Concentration

The following customer provided 10 percent or more of the Company's revenues for the three months ended March 31, 2023 and 2022:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

Nine Months Ended March 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

Total revenue

 

$

2,317,150

 

 

 

100.0

%

 

$

2,109,115

 

 

 

100.0

%

 

$

6,167,206

 

 

 

100.0

%

 

$

6,069,450

 

 

 

100.0

%

Customer concentrations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HSBC Bank (1)

 

 

328,465

 

 

 

14.2

%

 

 

130,855

 

 

 

6.2

%

 

 

751,828

 

 

 

12.2

%

 

 

343,090

 

 

 

5.7

%

 

41


 

 

(1) Sales with this trading partner include sales on forward contracts that are entered into for hedging purposes rather than sales characterized with the physical delivery of precious metal product. This sales activity has been reported within the Wholesale Sales and Ancillary Services segment.

 

No single customer provided 10 percent or more of the Company's accounts receivable balances as of March 31, 2023.

The following customers accounted for 10 percent or more of the Company's secured loans receivable as of March 31, 2023:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2023

 

 

June 30, 2022

 

 

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

Total secured loans

 

$

96,856

 

 

 

100.0

%

 

$

126,217

 

 

 

100.0

%

Customer concentrations

 

 

 

 

 

 

 

 

 

 

 

 

Customer A

 

$

11,500

 

 

 

11.9

%

 

$

 

 

 

0.0

%

Customer B

 

 

13,500

 

 

 

13.9

%

 

 

13,500

 

 

 

10.7

%

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 supplier or small group of suppliers is critical to its business, since other sources of supply are available that provide similar products on comparable terms.

 

42


 

19. SEGMENTS AND GEOGRAPHIC INFORMATION

The Company evaluates segment reporting in accordance with Segment Reporting Topic 280 of the ASC (“ASC 280”), 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, (ii) Direct-to-Consumer, 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 March 31,

 

 

 

Nine Months Ended March 31,

 

 

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

Revenue by segment(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

$

2,204,422

 

 

 

$

1,966,897

 

 

 

$

5,819,421

 

 

 

$

5,732,207

 

 

Eliminations of inter-segment sales

 

 

(409,282

)

 

 

 

(447,857

)

 

 

 

(1,052,440

)

 

 

 

(1,306,411

)

 

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

 

 

1,795,140

 

 

 

 

1,519,040

 

 

 

 

4,766,981

 

 

 

 

4,425,796

 

 

Direct-to-Consumer

 

 

522,010

 

 (a)

 

 

590,075

 

 (b)

 

 

1,400,225

 

 (c)

 

 

1,643,654

 

 (d)

 

$

2,317,150

 

 

 

$

2,109,115

 

 

 

$

6,167,206

 

 

 

$

6,069,450

 

 

 

(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 $2.1 million of inter-segment sales from the Direct-to-Consumer segment to the Wholesale Sales & Ancillary Services segment.
(b)
Includes $0.4 million of inter-segment sales from the Direct-to-Consumer segment to the Wholesale Sales & Ancillary Services segment.
(c)
Includes $2.7 million of inter-segment sales from the Direct-to-Consumer segment to the Wholesale Sales & Ancillary Services segment.
(d)
Includes $2.0 million of inter-segment sales from the Direct-to-Consumer segment to the Wholesale Sales & Ancillary Services segment.

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

Nine Months Ended March 31,

 

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

Revenue by geographic region

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

1,365,078

 

 

 

$

1,256,092

 

 

 

$

3,686,828

 

 

 

$

3,631,974

 

Europe

 

 

719,519

 

 

 

 

495,293

 

 

 

 

1,836,949

 

 

 

 

1,542,293

 

North America, excluding United States

 

 

218,810

 

 

 

 

342,392

 

 

 

 

613,454

 

 

 

 

850,681

 

Asia Pacific

 

 

13,065

 

 

 

 

9,592

 

 

 

 

22,846

 

 

 

 

34,586

 

Africa

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17

 

Australia

 

 

678

 

 

 

 

5,746

 

 

 

 

7,129

 

 

 

 

9,899

 

 

$

2,317,150

 

 

 

$

2,109,115

 

 

 

$

6,167,206

 

 

 

$

6,069,450

 

Gross Profit and Gross Margin Percentage

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

Nine Months Ended March 31,

 

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

Gross profit by segment(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

$

25,943

 

 

 

$

32,002

 

 

 

$

93,236

 

 

 

$

85,474

 

Eliminations and adjustments

 

 

6,343

 

 

 

 

(1,463

)

 

 

 

972

 

 

 

 

(445

)

Wholesale Sales & Ancillary Services, net of eliminations and adjustments

 

 

32,286

 

 

 

 

30,539

 

 

 

 

94,208

 

 

 

 

85,029

 

Direct-to-Consumer, net of eliminations

 

 

43,212

 

 

 

 

41,544

 

 

 

 

121,851

 

 

 

 

108,986

 

 

$

75,498

 

 

 

$

72,083

 

 

 

$

216,059

 

 

 

$

194,015

 

Gross margin percentage by segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

 

1.177

%

 

 

 

1.627

%

 

 

 

1.602

%

 

 

 

1.491

%

Wholesale Sales & Ancillary Services, net of eliminations and adjustments

 

 

1.799

%

 

 

 

2.010

%

 

 

 

1.976

%

 

 

 

1.921

%

Direct-to-Consumer

 

 

8.278

%

 

 

 

7.040

%

 

 

 

8.702

%

 

 

 

6.631

%

Consolidated gross margin percentage

 

 

3.258

%

 

 

 

3.418

%

 

 

 

3.503

%

 

 

 

3.197

%

 

(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.

43


 

Operating Income and (Expenses)

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

Nine Months Ended March 31,

 

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

Operating income (expense) by segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

$

(14,990

)

 

 

$

(9,963

)

 

 

$

(26,889

)

 

 

$

(24,485

)

Eliminations

 

 

(64

)

 

 

 

(60

)

 

 

 

(178

)

 

 

 

(191

)

Wholesale Sales & Ancillary Services, net of eliminations

 

$

(15,054

)

 

 

$

(10,023

)

 

 

$

(27,067

)

 

 

$

(24,676

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services, net of eliminations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

$

(12,428

)

 

 

$

(11,203

)

 

 

$

(29,377

)

 

 

$

(28,748

)

Depreciation and amortization expense

 

 

(247

)

 

 

 

(214

)

 

 

 

(703

)

 

 

 

(673

)

Interest income

 

 

3,601

 

 

 

 

2,300

 

 

 

 

9,081

 

 

 

 

7,952

 

Interest expense

 

 

(5,979

)

 

 

 

(2,379

)

 

 

 

(13,696

)

 

 

 

(7,396

)

Earnings (losses) from equity method investments

 

 

(72

)

 

 

 

1,608

 

 

 

 

7,272

 

 

 

 

4,317

 

Other income, net

 

 

36

 

 

 

 

 

 

 

 

106

 

 

 

 

 

Unrealized gains (losses) on foreign exchange

 

 

35

 

 

 

 

(135

)

 

 

 

250

 

 

 

 

(128

)

 

$

(15,054

)

 

 

$

(10,023

)

 

 

$

(27,067

)

 

 

$

(24,676

)

Direct-to-Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

$

(10,900

)

 

 

$

(8,912

)

 

 

$

(31,625

)

 

 

$

(25,906

)

Depreciation and amortization expense

 

 

(3,005

)

 

 

 

(7,246

)

 

 

 

(8,817

)

 

 

 

(23,140

)

Interest expense

 

 

(1,287

)

 

 

 

(703

)

 

 

 

(3,020

)

 

 

 

(2,062

)

Other expense, net

 

 

 

 

 

 

(50

)

 

 

 

(12

)

 

 

 

(50

)

 

$

(15,192

)

 

 

$

(16,911

)

 

 

$

(43,474

)

 

 

$

(51,158

)

Secured Lending

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

$

(513

)