A-Mark Precious Metals, Inc. (NASDAQ:AMRK): A Diversified Precious Metals Powerhouse Poised for Growth

Published on September 24, 2024 | Ticker: AMRK

A-Mark Precious Metals, Inc. (NASDAQ:AMRK) is a leading provider of precious metals products and services, operating in three key segments: Wholesale Sales & Ancillary Services, Direct-to-Consumer, and Secured Lending. With a strong track record of financial performance and a diversified business model, A-Mark is well-positioned to capitalize on the growing demand for precious metals and related services.

Business Overview

A-Mark's Wholesale Sales & Ancillary Services segment operates as a full-service precious metals company, offering a wide range of products, including gold, silver, platinum, and palladium in various forms. The segment also provides ancillary services such as financing, storage, consignment, logistics, and customized financial programs. A-Mark's Direct-to-Consumer segment, which includes the JM Bullion and Goldline subsidiaries, is a leading e-commerce retailer of precious metals, catering to individual investors and collectors. The Secured Lending segment, operated through Collateral Finance Corporation (CFC), originates and acquires commercial loans secured primarily by bullion and numismatic coins.

Financials

In the fiscal year ended June 30, 2023, A-Mark reported impressive financial results, with annual revenue of $9.322 billion and net income of $156.36 million. The company's diversified business model and strong operational execution have enabled it to navigate the challenges of the past year, including macroeconomic volatility and supply chain disruptions.

During the third quarter of fiscal 2024, A-Mark's revenues increased by 12.7% to $2.611 billion, compared to $2.317 billion in the same period of the prior year. However, excluding a $622.1 million increase in forward sales, the company's revenues decreased by 20%, primarily due to a decline in gold and silver ounces sold, partially offset by higher average selling prices. Gross profit for the quarter decreased by 53.9% to $34.8 million, with the company's gross margin percentage declining from 3.26% to 1.33%.

For the nine-month period ended March 31, 2024, A-Mark's revenues increased by 16.3% to $7.174 billion, compared to $6.167 billion in the same period of the prior year. Excluding a $1.514 billion increase in forward sales, the company's revenues decreased by 11%, again due to a decline in gold and silver ounces sold, partially offset by higher average selling prices. Gross profit for the nine-month period decreased by 39.7% to $130.3 million, with the gross margin percentage declining from 3.50% to 1.82%.

The company's net income for the third quarter of fiscal 2024 was $5.0 million, or $0.21 per diluted share, compared to $35.9 million, or $1.46 per diluted share, in the same period of the prior year. For the nine-month period, net income attributable to the company was $37.6 million, or $1.56 per diluted share, compared to $114.5 million, or $4.64 per diluted share, in the same period of the prior year.

A-Mark's operating cash flow for the nine-month period ended March 31, 2024 was -$21.9 million, compared to $43.2 million in the same period of the prior year. Free cash flow for the nine-month period was -$40.1 million, compared to $15.1 million in the same period of the prior year.

Segmental Performance

The Wholesale Sales & Ancillary Services segment contributed 84% of the company's consolidated revenue in the third quarter of fiscal 2024, with the Direct-to-Consumer segment contributing the remaining 16%. In the nine-month period, the Wholesale Sales & Ancillary Services segment contributed 86% of consolidated revenue, while the Direct-to-Consumer segment contributed 14%.

Gross profit for the Wholesale Sales & Ancillary Services segment decreased by 47.9% in the third quarter, with the segment's gross margin percentage declining from 1.80% to 0.74%. For the nine-month period, gross profit for the Wholesale Sales & Ancillary Services segment decreased by 26.7%, with the gross margin percentage declining from 1.98% to 1.12%.

The Direct-to-Consumer segment's gross profit decreased by 58.3% in the third quarter, with the segment's gross margin percentage declining from 8.28% to 5.36%. For the nine-month period, gross profit for the Direct-to-Consumer segment decreased by 49.8%, with the gross margin percentage declining from 8.70% to 5.93%.

The Secured Lending segment, which earns interest income from its lending activities, contributed $8.4 million in interest income for the nine-month period, a 19.1% increase compared to the same period of the prior year.

Geographical Breakdown

A-Mark's operations span multiple regions. In the third quarter of fiscal 2024, the United States contributed 43.3% of the company's revenue, while Europe contributed 51.3%, North America (excluding the United States) contributed 4.9%, and the Asia Pacific region contributed 0.5%. For the nine-month period, the United States contributed 48.3% of revenue, Europe contributed 45.7%, North America (excluding the United States) contributed 5.5%, and the Asia Pacific region contributed 0.5%.

Liquidity

As of March 31, 2024, A-Mark had $35.2 million in cash and $290.0 million in long-term lines of credit, providing the company with ample liquidity to support its operations and growth initiatives. The company's tangible net worth at the end of the third quarter was $391.1 million, down from $436.8 million at the end of the prior fiscal year, primarily due to share repurchases and dividends paid.

Risks and Challenges

A-Mark's business is subject to various risks, including fluctuations in commodity prices, supply chain disruptions, and regulatory changes. The company's performance is also heavily influenced by global macroeconomic conditions and political events, which can impact the demand for precious metals.

Outlook

Despite these challenges, A-Mark remains optimistic about its future prospects. The company's diversified business model, strong customer relationships, and strategic investments in technology and logistics have positioned it well to capitalize on the growing demand for precious metals and related services. Additionally, the company's recent acquisition of LPM Group Limited, a leading precious metals dealer in Asia, has expanded its global reach and opened up new growth opportunities.

In the near term, A-Mark expects to see continued volatility in the precious metals market, which may impact its financial performance. However, the company remains committed to its long-term growth strategy, which includes further expanding its Wholesale Sales & Ancillary Services and Direct-to-Consumer segments, as well as exploring strategic acquisitions and investments to enhance its market position and service offerings.

Conclusion

A-Mark Precious Metals, Inc. is a well-diversified precious metals company with a strong track record of financial performance. Despite the challenges posed by the current macroeconomic environment, the company's diversified business model, strategic investments, and global reach position it for continued growth and success. As the demand for precious metals and related services continues to evolve, A-Mark is poised to capitalize on these opportunities and deliver value to its shareholders.

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