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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended September 30, 2021

OR

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

 

For the transition period from ________ to ________

Commission File Number: 001-36347

 

A-MARK PRECIOUS METALS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

(State of Incorporation)

 

11-2464169

(IRS Employer I.D. No.)

 

2121 Rosecrans Ave. Suite 6300
El Segundo, CA 90245

(Address of principal executive offices)(Zip Code)

(310) 587-1477

(Registrant’s Telephone Number, Including Area Code)

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

AMRK

NASDAQ Global Select Market

 

 

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

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

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

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

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

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

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

 

 

 

 

 


 

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

For the Three Months Ended September 30, 2021

TABLE OF CONTENTS

 

 

 

 

 

Page

PART I

 

 

 

 

 

Item 1.

Financial Statements

 

1

 

Item 2.

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

 

43

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

69

 

Item 4.

Controls and Procedures

 

69

 

 

 

 

 

PART II

 

 

 

 

 

Item 1.

Legal Proceedings

 

69

 

Item 1A.

Risk Factors

 

70

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

83

 

Item 3.

Defaults upon Senior Securities

 

83

 

Item 4.

Mine Safety Disclosures

 

83

 

Item 5.

Other Information

 

83

 

Item 6.

Exhibits

 

83

Signatures

 

 

 

84

 

PART I — FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

Index to the Condensed Consolidated Financial Statements and Notes thereof

 

 

Page

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

2

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

4

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

5

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

6

Notes to Condensed Consolidated Financial Statements

7

Note 1. Description of Business

7

Note 2. Summary of Significant Accounting Policies

8

Note 3. Assets and Liabilities, at Fair Value

18

Note 4. Receivables

21

Note 5. Secured Loans Receivable

21

Note 6. Inventories

23

Note 7. Property, Plant, and Equipment

25

Note 8. Goodwill and Intangible Assets

25

Note 9. Long-Term Investments

27

Note 10. Accounts Payable and Other Current Liabilities

27

Note 11. Derivative Instruments and Hedging Transactions

27

Note 12. Income Taxes

30

Note 13. Related Party Transactions

32

Note 14. Financing Agreements

34

Note 15. Commitments and Contingencies

35

Note 16. Stockholders' Equity

36

Note 17. Customer and Supplier Concentrations

38

Note 18. Segments and Geographic Information

39

Note 19. Subsequent Events

42

 

 

 


 

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except for share data)

 

 

 

September 30,

2021

 

 

 

June 30,

2021

 

ASSETS

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash(1)

 

$

29,609

 

 

 

$

101,405

 

Receivables, net

 

 

104,522

 

 

 

 

89,000

 

Derivative assets

 

 

69,785

 

 

 

 

44,536

 

Secured loans receivable(1)

 

 

110,323

 

 

 

 

112,968

 

Precious metals held under financing arrangements(1)

 

 

130,618

 

 

 

 

154,742

 

Inventories:

 

 

 

 

 

 

 

 

 

Inventories(1)

 

 

346,285

 

 

 

 

256,991

 

Restricted inventories

 

 

219,420

 

 

 

 

201,028

 

 

 

 

565,705

 

 

 

 

458,019

 

Prepaid expenses and other assets(1)

 

 

4,074

 

 

 

 

3,557

 

Total current assets

 

 

1,014,636

 

 

 

 

964,227

 

Operating lease right of use assets

 

 

7,346

 

 

 

 

5,702

 

Property, plant, and equipment, net

 

 

8,913

 

 

 

 

8,609

 

Goodwill

 

 

100,943

 

 

 

 

100,943

 

Intangibles, net

 

 

85,761

 

 

 

 

93,633

 

Long-term investments

 

 

29,683

 

 

 

 

18,467

 

Total assets

 

$

1,247,282

 

 

 

$

1,191,581

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Lines of credit

 

$

194,000

 

 

 

$

185,000

 

Liabilities on borrowed metals

 

 

74,618

 

 

 

 

91,866

 

Product financing arrangements

 

 

219,420

 

 

 

 

201,028

 

Accounts payable and other current liabilities

 

 

178,798

 

 

 

 

200,351

 

Derivative liabilities

 

 

70,348

 

 

 

 

7,539

 

Accrued liabilities(1)

 

 

12,836

 

 

 

 

18,785

 

Income tax payable

 

 

7,140

 

 

 

 

5,016

 

Total current liabilities

 

 

757,160

 

 

 

 

709,585

 

Notes payable(1)

 

 

93,446

 

 

 

 

93,249

 

Deferred tax liabilities

 

 

18,091

 

 

 

 

19,514

 

Other liabilities

 

 

6,958

 

 

 

 

5,291

 

Total liabilities

 

 

875,655

 

 

 

 

827,639

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

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

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

 

 

 

 

 

 

 

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

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

   and June 30, 2021, respectively

 

 

114

 

 

 

 

113

 

Additional paid-in capital

 

 

154,619

 

 

 

 

150,420

 

Retained earnings

 

 

215,475

 

 

 

 

212,090

 

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

 

 

370,208

 

 

 

 

362,623

 

Noncontrolling interests

 

 

1,419

 

 

 

 

1,319

 

Total stockholders’ equity

 

 

371,627

 

 

 

 

363,942

 

Total liabilities, noncontrolling interests and stockholders’ equity

 

$

1,247,282

 

 

 

$

1,191,581

 

 

(1)

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

 

See accompanying Notes to Condensed Consolidated Financial Statements

2


 

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands)

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

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

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

 

 

 

September 30,

2021

 

 

 

June 30,

2021

 

ASSETS OF THE CONSOLIDATED VIE

 

 

 

 

 

 

 

 

 

Cash

 

$

5,162

 

 

 

$

2,877

 

Secured loans receivable

 

 

88,631

 

 

 

 

84,817

 

Precious metals held under financing arrangements

 

 

17,848

 

 

 

 

23,976

 

Inventories

 

 

2,675

 

 

 

 

2,532

 

Prepaid expenses and other assets

 

 

69

 

 

 

 

23

 

Total assets of the consolidated variable interest entity

 

$

114,385

 

 

 

$

114,225

 

LIABILITIES OF THE CONSOLIDATED VIE

 

 

 

 

 

 

 

 

 

Deferred payment obligations(1)

 

$

21,040

 

 

 

$

20,539

 

Accrued liabilities

 

 

880

 

 

 

 

847

 

Notes payable(2)

 

 

98,446

 

 

 

 

98,249

 

Total liabilities of the consolidated variable interest entity

 

$

120,366

 

 

 

$

119,635

 

 

 

 

 

 

 

 

 

 

 

 

(1)

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

(2)

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

 

See accompanying Notes to Condensed Consolidated Financial Statements

3


 

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

 

 

 

Three Months Ended

 

 

 

September 30,

2021

 

 

 

September 30,

2020

 

Revenues

 

$

2,013,971

 

 

 

$

1,866,116

 

Cost of sales

 

 

1,957,962

 

 

 

 

1,829,971

 

Gross profit

 

 

56,009

 

 

 

 

36,145

 

Selling, general, and administrative expenses

 

 

(16,677

)

 

 

 

(9,505

)

Depreciation and amortization expense

 

 

(8,271

)

 

 

 

(501

)

Interest income

 

 

5,531

 

 

 

 

3,983

 

Interest expense

 

 

(5,473

)

 

 

 

(4,293

)

Earnings from equity method investments

 

 

1,489

 

 

 

 

4,126

 

Other income, net

 

 

409

 

 

 

 

359

 

Unrealized losses on foreign exchange

 

 

(224

)

 

 

 

(97

)

Net income before provision for income taxes

 

 

32,793

 

 

 

 

30,217

 

Income tax expense

 

 

(6,669

)

 

 

 

(6,511

)

Net income

 

 

26,124

 

 

 

 

23,706

 

Net income attributable to noncontrolling interests

 

 

100

 

 

 

 

623

 

Net income attributable to the Company

 

$

26,024

 

 

 

$

23,083

 

Basic and diluted net income per share attributable

   to A-Mark Precious Metals, Inc.:

 

 

 

 

 

 

 

 

 

Basic

 

$

2.31

 

 

 

$

3.28

 

Diluted

 

$

2.17

 

 

 

$

3.09

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

 

11,262,600

 

 

 

 

7,034,700

 

Diluted

 

 

12,009,300

 

 

 

 

7,475,000

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

 

 

 

4


 

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except for share data)

 

 

 

Common

Stock

(Shares)

 

 

Common

Stock

 

 

Additional

Paid-in

Capital

 

 

Retained

Earnings

 

 

Total

A-Mark

Precious

Metals, Inc.

Stockholders'

Equity

 

 

Non-

Controlling

Interests

 

 

Total

Stockholders’

Equity

 

Balance, June 30, 2020

 

 

7,031,500

 

 

$

71

 

 

$

27,289

 

 

$

73,644

 

 

$

101,004

 

 

$

3,890

 

 

$

104,894

 

Net income

 

 

 

 

 

 

 

 

 

 

 

23,083

 

 

 

23,083

 

 

 

623

 

 

 

23,706

 

Share-based compensation

 

 

 

 

 

 

 

 

178

 

 

 

 

 

 

178

 

 

 

 

 

 

178

 

Net settlement on issuance of common shares on exercise of options

 

 

35,030

 

 

 

 

 

 

416

 

 

 

 

 

 

416

 

 

 

 

 

 

416

 

Dividends declared ($1.50 per common share)

 

 

 

 

 

 

 

 

 

 

 

(10,553

)

 

 

(10,553

)

 

 

 

 

 

(10,553

)

Balance, September 30, 2020

 

 

7,066,530

 

 

 

71

 

 

$

27,883

 

 

$

86,174

 

 

$

114,128

 

 

$

4,513

 

 

$

118,641

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2021

 

 

11,229,657

 

 

$

113

 

 

$

150,420

 

 

$

212,090

 

 

$

362,623

 

 

$

1,319

 

 

$

363,942

 

Net income

 

 

 

 

 

 

 

 

 

 

 

26,024

 

 

 

26,024

 

 

 

100

 

 

 

26,124

 

Share-based compensation

 

 

 

 

 

 

 

 

473

 

 

 

 

 

 

473

 

 

 

 

 

 

473

 

Net settlement on issuance of common shares on exercise of options

 

 

60,650

 

 

 

 

 

 

749

 

 

 

 

 

 

749

 

 

 

 

 

 

749

 

Common stock issued for increase in long term investment

 

 

61,590

 

 

 

1

 

 

 

2,977

 

 

 

 

 

 

2,978

 

 

 

 

 

 

2,978

 

Dividends declared ($2.00 per common share)

 

 

 

 

 

 

 

 

 

 

 

(22,639

)

 

 

(22,639

)

 

 

 

 

 

(22,639

)

Balance, September 30, 2021

 

 

11,351,897

 

 

$

114

 

 

$

154,619

 

 

$

215,475

 

 

$

370,208

 

 

$

1,419

 

 

$

371,627

 

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

 

5


 

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

 

Three Months Ended September 30,

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

26,124

 

 

$

23,706

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

8,271

 

 

 

501

 

Amortization of loan cost

 

 

569

 

 

 

396

 

Deferred income taxes

 

 

(1,423

)

 

 

 

Interest added to principal of secured loans

 

 

(5

)

 

 

(4

)

Share-based compensation

 

 

473

 

 

 

178

 

Earnings from equity method investments

 

 

(1,489

)

 

 

(4,126

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

(15,522

)

 

 

(26,526

)

Secured loans receivable

 

 

25

 

 

 

(358

)

Secured loans made to affiliates

 

 

3,032

 

 

 

4,642

 

Derivative assets

 

 

(25,249

)

 

 

(67,275

)

Precious metals held under financing arrangements

 

 

24,124

 

 

 

19,821

 

Inventories

 

 

(107,686

)

 

 

(91,900

)

Prepaid expenses and other assets

 

 

(689

)

 

 

(292

)

Accounts payable and other current liabilities

 

 

(21,553

)

 

 

69,992

 

Derivative liabilities

 

 

62,809

 

 

 

(11,917

)

Liabilities on borrowed metals

 

 

(17,248

)

 

 

(14,454

)

Accrued liabilities

 

 

(6,420

)

 

 

(1,227

)

Income tax payable

 

 

2,124

 

 

 

771

 

Net cash used in operating activities

 

 

(69,733

)

 

 

(98,072

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures for property, plant, and equipment

 

 

(709

)

 

 

(476

)

Purchase of long-term investments

 

 

(6,250

)

 

 

 

Secured loans receivable, net

 

 

(407

)

 

 

(24,793

)

Net cash used in investing activities

 

 

(7,366

)

 

 

(25,269

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Product financing arrangements, net

 

 

18,392

 

 

 

26,921

 

Dividends paid

 

 

(22,639

)

 

 

(10,553

)

Borrowings and repayments under lines of credit, net

 

 

9,000

 

 

 

79,000

 

Debt funding issuance costs

 

 

(199

)

 

 

(398

)

Net settlement on issuance of common shares on exercise of options

 

 

749

 

 

 

416

 

Net cash provided by financing activities

 

 

5,303

 

 

 

95,386

 

Net decrease in cash, cash equivalents, and restricted cash

 

 

(71,796

)

 

 

(27,955

)

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

 

 

101,405

 

 

 

52,325

 

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

 

$

29,609

 

 

$

24,370

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

5,839

 

 

$

3,737

 

Income taxes paid

 

$

5,967

 

 

$

6,726

 

Income taxes refunded

 

$

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