amrk-10q_20210930.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2021

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

For the transition period from ________ to ________

Commission File Number: 001-36347

A-MARK PRECIOUS METALS, INC.

(Exact name of registrant as specified in its charter)

Delaware

(State of Incorporation)

11-2464169

(IRS Employer I.D. No.)

2121 Rosecrans Ave. Suite 6300
El Segundo, CA 90245

(Address of principal executive offices)(Zip Code)

(310) 587-1477

(Registrant’s Telephone Number, Including Area Code)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	AMRK	NASDAQ Global Select Market

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

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

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

Large accelerated filer	☐	Accelerated filer	☑
Non-accelerated filer	☐	Smaller reporting company	☑
		Emerging growth company	☐

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

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

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

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

For the Three Months Ended September 30, 2021

TABLE OF CONTENTS

			Page
PART I
	Item 1.	Financial Statements	1
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	43
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	69
	Item 4.	Controls and Procedures	69

PART II
	Item 1.	Legal Proceedings	69
	Item 1A.	Risk Factors	70
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	83
	Item 3.	Defaults upon Senior Securities	83
	Item 4.	Mine Safety Disclosures	83
	Item 5.	Other Information	83
	Item 6.	Exhibits	83
Signatures			84

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Index to the Condensed Consolidated Financial Statements and Notes thereof

	Page
Condensed Consolidated Balance Sheets as of September 30, 2021 and June 30, 2021	2
Condensed Consolidated Statements of Income for the Three Months Ended September 30, 2021 and 2020	4
Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended September 30, 2021 and 2020	5
Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2021 and 2020	6
Notes to Condensed Consolidated Financial Statements	7
Note 1. Description of Business	7
Note 2. Summary of Significant Accounting Policies	8
Note 3. Assets and Liabilities, at Fair Value	18
Note 4. Receivables	21
Note 5. Secured Loans Receivable	21
Note 6. Inventories	23
Note 7. Property, Plant, and Equipment	25
Note 8. Goodwill and Intangible Assets	25
Note 9. Long-Term Investments	27
Note 10. Accounts Payable and Other Current Liabilities	27
Note 11. Derivative Instruments and Hedging Transactions	27
Note 12. Income Taxes	30
Note 13. Related Party Transactions	32
Note 14. Financing Agreements	34
Note 15. Commitments and Contingencies	35
Note 16. Stockholders' Equity	36
Note 17. Customer and Supplier Concentrations	38
Note 18. Segments and Geographic Information	39
Note 19. Subsequent Events	42

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except for share data)

	September 30, 2021		June 30, 2021
ASSETS
Current assets:
Cash⁽¹⁾	$	29,609	$	101,405
Receivables, net		104,522		89,000
Derivative assets		69,785		44,536
Secured loans receivable⁽¹⁾		110,323		112,968
Precious metals held under financing arrangements⁽¹⁾		130,618		154,742
Inventories:
Inventories⁽¹⁾		346,285		256,991
Restricted inventories		219,420		201,028
		565,705		458,019
Prepaid expenses and other assets⁽¹⁾		4,074		3,557
Total current assets		1,014,636		964,227
Operating lease right of use assets		7,346		5,702
Property, plant, and equipment, net		8,913		8,609
Goodwill		100,943		100,943
Intangibles, net		85,761		93,633
Long-term investments		29,683		18,467
Total assets	$	1,247,282	$	1,191,581
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Lines of credit	$	194,000	$	185,000
Liabilities on borrowed metals		74,618		91,866
Product financing arrangements		219,420		201,028
Accounts payable and other current liabilities		178,798		200,351
Derivative liabilities		70,348		7,539
Accrued liabilities⁽¹⁾		12,836		18,785
Income tax payable		7,140		5,016
Total current liabilities		757,160		709,585
Notes payable⁽¹⁾		93,446		93,249
Deferred tax liabilities		18,091		19,514
Other liabilities		6,958		5,291
Total liabilities		875,655		827,639
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, authorized 10,000,000 shares; issued and outstanding: none as of September 30, 2021 and June 30, 2021		—		—
Common stock, par value $0.01; 40,000,000 shares authorized; 11,351,897 and 11,229,657 shares issued and outstanding as of September 30, 2021 and June 30, 2021, respectively		114		113
Additional paid-in capital		154,619		150,420
Retained earnings		215,475		212,090
Total A-Mark Precious Metals, Inc. stockholders’ equity		370,208		362,623
Noncontrolling interests		1,419		1,319
Total stockholders’ equity		371,627		363,942
Total liabilities, noncontrolling interests and stockholders’ equity	$	1,247,282	$	1,191,581

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

See accompanying Notes to Condensed Consolidated Financial Statements

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands)

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

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

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

	September 30, 2021		June 30, 2021
ASSETS OF THE CONSOLIDATED VIE
Cash	$	5,162	$	2,877
Secured loans receivable		88,631		84,817
Precious metals held under financing arrangements		17,848		23,976
Inventories		2,675		2,532
Prepaid expenses and other assets		69		23
Total assets of the consolidated variable interest entity	$	114,385	$	114,225
LIABILITIES OF THE CONSOLIDATED VIE
Deferred payment obligations⁽¹⁾	$	21,040	$	20,539
Accrued liabilities		880		847
Notes payable⁽²⁾		98,446		98,249
Total liabilities of the consolidated variable interest entity	$	120,366	$	119,635

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

(2)	$5.0 million of the Notes are held by the Company, which is eliminated in consolidation and hence is not shown on the consolidated balance sheets.

See accompanying Notes to Condensed Consolidated Financial Statements

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

	Three Months Ended
	September 30, 2021			September 30, 2020
Revenues	$	2,013,971		$	1,866,116
Cost of sales		1,957,962			1,829,971
Gross profit		56,009			36,145
Selling, general, and administrative expenses		(16,677	)		(9,505	)
Depreciation and amortization expense		(8,271	)		(501	)
Interest income		5,531			3,983
Interest expense		(5,473	)		(4,293	)
Earnings from equity method investments		1,489			4,126
Other income, net		409			359
Unrealized losses on foreign exchange		(224	)		(97	)
Net income before provision for income taxes		32,793			30,217
Income tax expense		(6,669	)		(6,511	)
Net income		26,124			23,706
Net income attributable to noncontrolling interests		100			623
Net income attributable to the Company	$	26,024		$	23,083
Basic and diluted net income per share attributable to A-Mark Precious Metals, Inc.:
Basic	$	2.31		$	3.28
Diluted	$	2.17		$	3.09

Weighted average shares outstanding:
Basic		11,262,600			7,034,700
Diluted		12,009,300			7,475,000

See accompanying Notes to Condensed Consolidated Financial Statements

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except for share data)

	Common Stock (Shares)		Common Stock		Additional Paid-in Capital		Retained Earnings			Total A-Mark Precious Metals, Inc. Stockholders' Equity			Non- Controlling Interests		Total Stockholders’ Equity
Balance, June 30, 2020		7,031,500	$	71	$	27,289	$	73,644		$	101,004		$	3,890	$	104,894
Net income		—		—		—		23,083			23,083			623		23,706
Share-based compensation		—		—		178		—			178			—		178
Net settlement on issuance of common shares on exercise of options		35,030		—		416		—			416			—		416
Dividends declared ($1.50 per common share)		—		—		—		(10,553	)		(10,553	)		—		(10,553	)
Balance, September 30, 2020		7,066,530		71	$	27,883	$	86,174		$	114,128		$	4,513	$	118,641

Balance, June 30, 2021		11,229,657	$	113	$	150,420	$	212,090		$	362,623		$	1,319	$	363,942
Net income		—		—		—		26,024			26,024			100		26,124
Share-based compensation		—		—		473		—			473			—		473
Net settlement on issuance of common shares on exercise of options		60,650		—		749		—			749			—		749
Common stock issued for increase in long term investment		61,590		1		2,977		—			2,978			—		2,978
Dividends declared ($2.00 per common share)		—		—		—		(22,639	)		(22,639	)		—		(22,639	)
Balance, September 30, 2021		11,351,897	$	114	$	154,619	$	215,475		$	370,208		$	1,419	$	371,627

See accompanying Notes to Condensed Consolidated Financial Statements

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

Three Months Ended September 30,	2021			2020
Cash flows from operating activities:
Net income	$	26,124		$	23,706
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		8,271			501
Amortization of loan cost		569			396
Deferred income taxes		(1,423	)		—
Interest added to principal of secured loans		(5	)		(4	)
Share-based compensation		473			178
Earnings from equity method investments		(1,489	)		(4,126	)
Changes in assets and liabilities:
Receivables		(15,522	)		(26,526	)
Secured loans receivable		25			(358	)
Secured loans made to affiliates		3,032			4,642
Derivative assets		(25,249	)		(67,275	)
Precious metals held under financing arrangements		24,124			19,821
Inventories		(107,686	)		(91,900	)
Prepaid expenses and other assets		(689	)		(292	)
Accounts payable and other current liabilities		(21,553	)		69,992
Derivative liabilities		62,809			(11,917	)
Liabilities on borrowed metals		(17,248	)		(14,454	)
Accrued liabilities		(6,420	)		(1,227	)
Income tax payable		2,124			771
Net cash used in operating activities		(69,733	)		(98,072	)
Cash flows from investing activities:
Capital expenditures for property, plant, and equipment		(709	)		(476	)
Purchase of long-term investments		(6,250	)		—
Secured loans receivable, net		(407	)		(24,793	)
Net cash used in investing activities		(7,366	)		(25,269	)
Cash flows from financing activities:
Product financing arrangements, net		18,392			26,921
Dividends paid		(22,639	)		(10,553	)
Borrowings and repayments under lines of credit, net		9,000			79,000
Debt funding issuance costs		(199	)		(398	)
Net settlement on issuance of common shares on exercise of options		749			416
Net cash provided by financing activities		5,303			95,386
Net decrease in cash, cash equivalents, and restricted cash		(71,796	)		(27,955	)
Cash, cash equivalents, and restricted cash, beginning of period		101,405			52,325
Cash, cash equivalents, and restricted cash, end of period	$	29,609		$	24,370
Supplemental disclosures of cash flow information:
Interest paid	$	5,839		$	3,737
Income taxes paid	$	5,967		$	6,726
Income taxes refunded	$	—<