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AMRK A-Mark Precious Metals

Filed: 10 Feb 21, 5:09pm

 

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 December 31, 2020

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 Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

AMRK

NASDAQ Global Select Market

 

 

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

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

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

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

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

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

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

As of February 4, 2021, the registrant had 7,195,434 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 Six Months Ended December 31, 2020

TABLE OF CONTENTS

 

 

PART I — FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to the Condensed Consolidated Financial Statements and Notes thereof

 

 

Page

Condensed Consolidated Balance Sheets as of December 31, 2020 and June 30, 2020

3

Condensed Consolidated Statements of Income for the Three and Six Months Ended December 31, 2020 and 2019

5

Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended December 31, 2020 and 2019

6

Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2020 and 2019

7

Notes to Consolidated Financial Statements

8

Note 1. Description of Business

8

Note 2. Summary of Significant Accounting Policies

9

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

26

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

31

Note 14. Financing Agreements

33

Note 15. Commitments and Contingencies

35

Note 16. Stockholders' Equity

35

Note 17. Customer and Supplier Concentrations

37

Note 18. Segments and Geographic Information

38

Note 19. Subsequent Events

42

 

2


A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except for share data) (unaudited)

 

 

 

 

 

December 31,

2020

 

 

 

June 30,

2020

 

ASSETS

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash(1)

 

$

14,922

 

 

 

$

52,325

 

Receivables, net(1)

 

 

101,864

 

 

 

 

49,142

 

Derivative assets(1)

 

 

57,849

 

 

 

 

46,325

 

Secured loans receivable(1)

 

 

95,817

 

 

 

 

63,710

 

Precious metals held under financing arrangements(1)

 

 

160,255

 

 

 

 

178,577

 

Inventories:

 

 

 

 

 

 

 

 

 

Inventories(1)

 

 

245,151

 

 

 

 

246,603

 

Restricted inventories

 

 

272,531

 

 

 

 

74,678

 

 

 

 

517,682

 

 

 

 

321,281

 

Prepaid expenses and other assets(1)

 

 

3,131

 

 

 

 

2,659

 

Total current assets

 

 

951,520

 

 

 

 

714,019

 

Operating lease right of use assets

 

 

3,642

 

 

 

 

4,223

 

Property, plant, and equipment, net

 

 

5,913

 

 

 

 

5,675

 

Goodwill

 

 

8,881

 

 

 

 

8,881

 

Intangibles, net

 

 

4,657

 

 

 

 

4,974

 

Long-term investments

 

 

30,013

 

 

 

 

16,763

 

Other long-term assets

 

 

2,500

 

 

 

 

3,500

 

Total assets

 

$

1,007,126

 

 

 

$

758,035

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Lines of credit

 

$

175,000

 

 

 

$

135,000

 

Liabilities on borrowed metals

 

 

141,796

 

 

 

 

168,206

 

Product financing arrangements

 

 

272,531

 

 

 

 

74,678

 

Accounts payable and other current liabilities

 

 

142,372

 

 

 

 

140,930

 

Derivative liabilities(1)

 

 

50,809

 

 

 

 

25,414

 

Accrued liabilities(1)

 

 

9,431

 

 

 

 

10,397

 

Income tax payable

 

 

715

 

 

 

 

2,135

 

Total current liabilities

 

 

792,654

 

 

 

 

556,760

 

Notes payable(1)

 

 

92,874

 

 

 

 

92,517

 

Deferred tax liabilities

 

 

62

 

 

 

 

62

 

Other liabilities

 

 

3,108

 

 

 

 

3,802

 

Total liabilities

 

 

888,698

 

 

 

 

653,141

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

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

   and outstanding: none as of December 31, 2020 and June 30, 2020

 

 

 

 

 

 

 

Common stock, par value $0.01; 40,000,000 shares authorized; 7,131,462

   and 7,031,500 shares issued and outstanding as of December 31, 2020

   and June 30, 2020, respectively

 

 

72

 

 

 

 

71

 

Additional paid-in capital

 

 

29,093

 

 

 

 

27,289

 

Retained earnings

 

 

84,461

 

 

 

 

73,644

 

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

 

 

113,626

 

 

 

 

101,004

 

Non-controlling interests

 

 

4,802

 

 

 

 

3,890

 

Total stockholders’ equity

 

 

118,428

 

 

 

 

104,894

 

Total liabilities, non-controlling interests and stockholders’ equity

 

$

1,007,126

 

 

 

$

758,035

 

 

(1)

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

 

 

 

See accompanying

3


Notes to Condensed Consolidated Financial Statements

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 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 it is considered to be the primary beneficiary.  AMCF is a VIE because its equity may be insufficient to maintain its ongoing 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 is 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 for additional information.

 

 

 

December 31,

2020

 

 

 

June 30,

2020

 

ASSETS OF THE CONSOLIDATED VIE

 

 

 

 

 

 

 

 

 

Cash

 

$

3,529

 

 

 

$

26,697

 

Receivables, net

 

 

446

 

 

 

 

3,005

 

Secured loans receivable

 

 

69,937

 

 

 

 

34,739

 

Precious metals held under financing arrangements

 

 

27,889

 

 

 

 

20,968

 

Inventories

 

 

7,907

 

 

 

 

24,057

 

Prepaid expenses and other assets

 

 

42

 

 

 

 

16

 

Total assets of the consolidated variable interest entity

 

$

109,750

 

 

 

$

109,482

 

LIABILITIES OF THE CONSOLIDATED VIE

 

 

 

 

 

 

 

 

 

Deferred payment obligations(1)

 

$

15,010

 

 

 

$

13,275

 

Derivative liabilities

 

 

87

 

 

 

 

541

 

Accrued liabilities

 

 

728

 

 

 

 

387

 

Notes payable(2)

 

 

97,875

 

 

 

 

97,517

 

Total liabilities of the consolidated variable interest entity

 

$

113,700

 

 

 

$

111,720

 

 

 

 

 

 

 

 

 

 

 

 

(1)

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

(2)

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

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

 

 

 

 

4


 

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

 

 

 

Six Months Ended

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

Revenues

 

$

1,518,744

 

 

 

$

1,055,590

 

 

 

 

3,384,860

 

 

 

$

2,536,604

 

Cost of sales

 

 

1,499,993

 

 

 

 

1,047,459

 

 

 

 

3,329,964

 

 

 

 

2,520,133

 

Gross profit

 

 

18,751

 

 

 

 

8,131

 

 

 

 

54,896

 

 

 

 

16,471

 

Selling, general, and administrative expenses

 

 

(9,033

)

 

 

 

(7,870

)

 

 

 

(19,039

)

 

 

 

(16,140

)

Interest income

 

 

4,533

 

 

 

 

6,232

 

 

 

 

8,516

 

 

 

 

12,000

 

Interest expense

 

 

(5,037

)

 

 

 

(5,081

)

 

 

 

(9,330

)

 

 

 

(10,223

)

Other income (expense), net

 

 

2,567

 

 

 

 

150

 

 

 

 

7,052

 

 

 

 

(16

)

Unrealized gains (losses) on foreign exchange

 

 

19

 

 

 

 

125

 

 

 

 

(78

)

 

 

 

3

 

Net income before provision for income taxes

 

 

11,800

 

 

 

 

1,687

 

 

 

 

42,017

 

 

 

 

2,095

 

Income tax expense

 

 

(2,586

)

 

 

 

(432

)

 

 

 

(9,097

)

 

 

 

(537

)

Net income

 

 

9,214

 

 

 

 

1,255

 

 

 

 

32,920

 

 

 

 

1,558

 

Net income attributable to non-controlling interests

 

 

289

 

 

 

 

21

 

 

 

 

912

 

 

 

 

196

 

Net income attributable to the Company

 

$

8,925

 

 

 

$

1,234

 

 

 

$

32,008

 

 

 

$

1,362

 

Basic and diluted net income per share attributable

   to A-Mark Precious Metals, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.26

 

 

 

$

0.17

 

 

 

$

4.53

 

 

 

$

0.19

 

Diluted

 

$

1.16

 

 

 

$

0.17

 

 

 

$

4.21

 

 

 

$

0.19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

7,063,000

 

 

 

 

7,031,400

 

 

 

 

7,064,800

 

 

 

 

7,031,400

 

Diluted

 

 

7,713,300

 

 

 

 

7,056,300

 

 

 

 

7,610,400

 

 

 

 

7,074,800

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

 

 

5


 

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except for share data) (unaudited)

 

 

 

 

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, 2019

 

 

7,031,450

 

 

 

71

 

 

 

26,452

 

 

 

43,135

 

 

 

69,658

 

 

 

2,908

 

 

 

72,566

 

Net income

 

 

 

 

 

 

 

 

 

 

 

128

 

 

 

128

 

 

 

175

 

 

 

303

 

Share-based compensation

 

 

 

 

 

 

 

 

166

 

 

 

 

 

 

166

 

 

 

 

 

 

166

 

Balance, September 30, 2019

 

 

7,031,450

 

 

 

71

 

 

 

26,618

 

 

 

43,263

 

 

 

69,952

 

 

 

3,083

 

 

 

73,035

 

Net income

 

 

 

 

 

 

 

 

-

 

 

 

1,234

 

 

 

1,234

 

 

 

21

 

 

 

1,255

 

Share-based compensation

 

 

 

 

 

 

 

 

244

 

 

 

 

 

 

244

 

 

 

 

 

 

244

 

Balance, December 31, 2019

 

 

7,031,450

 

 

 

71

 

 

 

26,862

 

 

 

44,497

 

 

 

71,430

 

 

 

3,104

 

 

 

74,534

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Net income

 

 

 

 

 

 

 

 

 

 

 

8,925

 

 

 

8,925

 

 

 

289

 

 

 

9,214

 

Share-based compensation

 

 

 

 

 

 

 

 

210

 

 

 

 

 

 

210

 

 

 

 

 

 

210

 

Net settlement on issuance of common shares on exercise of options

 

 

64,932

 

 

 

1

 

 

 

1,000

 

 

 

 

 

 

1,001

 

 

 

 

 

 

1,001

 

Dividends declared ($1.50 per common share)

 

 

 

 

 

 

 

 

 

 

 

(10,638

)

 

 

(10,638

)

 

 

 

 

 

(10,638

)

Balance, December 31, 2020

 

 

7,131,462

 

 

 

72

 

 

 

29,093

 

 

 

84,461

 

 

 

113,626

 

 

 

4,802

 

 

 

118,428

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

 

 

6


 

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands) (unaudited)

 

Six Months Ended December 31,

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

32,920

 

 

$

1,558

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,006

 

 

 

1,334

 

Amortization of loan cost

 

 

968

 

 

 

730

 

Deferred income taxes

 

 

 

 

 

474

 

Interest added to principal of secured loans

 

 

(4

)

 

 

(10

)

Share-based compensation

 

 

388

 

 

 

410

 

Earnings from equity method investments

 

 

(6,488

)

 

 

(114

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

(52,722

)

 

 

2,297

 

Secured loans receivable

 

 

(309

)

 

 

2,131

 

Secured loans made to affiliates

 

 

8,662

 

 

 

5,108

 

Derivative assets

 

 

(11,524

)

 

 

(2,931

)

Income tax receivable

 

 

 

 

 

7

 

Precious metals held under financing arrangements

 

 

18,322

 

 

 

11,820

 

Inventories

 

 

(196,401

)

 

 

29,930

 

Prepaid expenses and other assets

 

 

(532

)

 

 

359

 

Accounts payable and other current liabilities

 

 

1,442

 

 

 

174

 

Derivative liabilities

 

 

25,395

 

 

 

(923

)

Liabilities on borrowed metals

 

 

(26,410

)

 

 

(8,255

)

Accrued liabilities

 

 

(1,068

)

 

 

(743

)

Income tax payable

 

 

(1,420

)

 

 

 

Net cash (used in) provided by operating activities

 

 

(207,775

)

 

 

43,356

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures for property, plant, and equipment

 

 

(937

)

 

 

(455

)

Purchase of long-term investments

 

 

(6,763

)

 

 

 

Purchase of intangible assets

 

 

 

 

 

(150

)

Secured loans receivable, net

 

 

(40,456

)

 

 

(34,274

)

Other secured loans, net

 

��

1,000

 

 

 

(3,500

)

Net cash used in investing activities

 

 

(47,156

)

 

 

(38,379

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Product financing arrangements, net

 

 

197,853

 

 

 

(14,739

)

Dividends paid

 

 

(21,191

)

 

 

 

Borrowings and repayments under lines of credit, net

 

 

40,000

 

 

 

13,000

 

Debt funding issuance costs

 

 

(551

)

 

 

 

Net settlement on issuance of common shares on exercise of options

 

 

1,417

 

 

 

 

Net cash provided by (used in) financing activities

 

 

217,528

 

 

 

(1,739

)

Net (decrease) increase in cash, cash equivalents, and restricted cash

 

 

(37,403

)

 

 

3,238

 

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

 

 

52,325

 

 

 

8,320

 

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

 

$

14,922

 

 

$

11,558

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

7,721

 

 

$

10,026

 

Income taxes paid

 

$

11,561

 

 

$

50

 

Income taxes refunded

 

$

(1,044

)

 

$

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Interest added to principal of secured loans

 

$

4

 

 

$

10

 

 

 

 

 

See accompanying

7


Notes to Condensed Consolidated Financial Statements

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

NOTES TO 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" or the "Company"), its wholly owned consolidated subsidiaries, and its joint ventures in which the Company has a controlling interest.

Business Segments

The Company conducts its operations in three reportable segments: (i) Wholesale Sales & Ancillary Services (formerly known as Wholesale Trading & Ancillary Services segment), (ii) Secured Lending, and (iii) Direct Sales. 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 Financial Accounting Standards Board’s ("FASB") Accounting Standards Codification (“ASC”). (See Note 18.)

The Wholesale Sales & Ancillary Services segment name change was to the name only and had no impact on the Company's historical financial position, results of operations, cash flow or segment level results previously reported.

Wholesale Sales & Ancillary Services

The Wholesale Sales & Ancillary Services segment operates as a full-service precious metals company. The products sold within this segment include: gold, silver, platinum, and palladium primarily in the form of coins, rounds, bars, wafers, and grain. This segment's trading-related services include: consignment, storage, logistics, hedging, and various customized financial programs.

Through its wholly owned subsidiary, A-Mark Trading AG (“AMTAG”), the Company promotes A-Mark's goods and services to the international market. Transcontinental Depository Services (“TDS”), also a wholly owned subsidiary of the Company, offers worldwide storage solutions to institutions, dealers, and consumers.

The Company's wholly-owned subsidiary, A-M Global Logistics, LLC. ("Logistics" or “AMGL”), operates the Company's logistics fulfillment center. Logistics provides customers an array of complementary services, including packaging, shipping, handling, receiving, processing, and inventorying of precious metals and custom coins on a secure basis.

Through our partially-owned subsidiary, AM&ST Associates, LLC. ("AMST" or "SilverTowne" or the "Mint"), the Company designs and produces minted silver products. The Company operates the Mint pursuant to a joint venture agreement with SilverTowne, L.P.  The Company and SilverTowne L.P. own 69% and 31%, respectively, of AMST.

Secured Lending

The Company operates its Secured Lending segment through its wholly-owned subsidiary, Collateral Finance Corporation LLC. ("CFC".) CFC is a California licensed finance lender that originates and acquires commercial loans secured by bullion and numismatic coins. CFC's customers include coin and precious metal dealers, investors, and collectors.

AM Capital Funding, LLC. (“AMCF”), a wholly owned subsidiary of CFC, was formed for the purpose of securitizing eligible secured loans of CFC.  AMCF issued and administers the Notes. For additional information, see Note 14.

Direct Sales

The Company's wholly-owned subsidiary, Goldline, Inc. ("Goldline"), is a direct retailer of precious metals to the investor community.  Goldline markets its precious metal products primarily on radio, television, and the internet.  Goldline sells gold and silver bullion in the form of coins, rounds, and bars.

AM IP LLC. ("AMIP"), a wholly owned subsidiary of Goldline, manages its intellectual property.

Precious Metals Purchasing Partners, LLC, ("PMPP"), is a 50% owned subsidiary of Goldline.  PPMP acquires precious metals from retail customers and resells the metals to partners or affiliates of the joint venture.

8


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The condensed consolidated financial statements reflect the financial condition, results of operations, statement 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, majority owned, and entities that are variable interest entities where the Company is determined to be the primary beneficiary.  Our condensed consolidated financial statements include the accounts of A-Mark, AMTAG, TDS, AMGL, AMST, CFC, AMCF, Goldline, AMIP, and PMPP (collectively the “Company”).  Intercompany accounts and transactions are eliminated.

Comprehensive Income

For the six months ended December 31, 2020 and 2019, there were no items that gave rise to other comprehensive income or loss, and, as a result net income equaled comprehensive income.

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, allowances for doubtful accounts, 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. Significant estimates also include the Company's fair value determination with respect to its financial instruments and precious metals inventory. Actual results could materially differ from these estimates.

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 six months ended December 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2021 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 2020 (the “2020 Annual Report”), as filed with the SEC. Amounts related to disclosure of June 30, 2020 balances within these interim condensed consolidated financial statements were derived from the aforementioned audited consolidated financial statements and notes thereto included in the 2020 Annual Report.

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. Concentration of credit risk with respect to receivables is limited due to the large number of customers composing the Company's customer base, the geographic dispersion of the customers, and the collateralization of substantially all receivable balances. 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

9


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").  Also, the functional currency of the Company's wholly-owned foreign subsidiary, AMTAG, is USD, but it maintains its books of record in the European Union Euro. The Company remeasures the financial statements of AMTAG into USD. The remeasurement of local currency amounts into USD creates remeasurement gains and losses, which are included in the condensed consolidated statements of income.

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.

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 VIEs 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 reconsiders its previous conclusions 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 the 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 ongoing 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 December 31, 2020 and June 30, 2020, are indicated on the table that follows the condensed consolidated balance sheets.

AMCF is a VIE because its initial equity investment may be insufficient to maintain its ongoing 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 14.)

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 does not have any cash equivalents as of December 31, 2020 and June 30, 2020.

As of December 31, 2020 and June 30, 2020, the Company has $0.2 million and $0.2 million, respectively, in a bank account that is restricted and serves as collateral against a standby letter of credit issued by the bank in favor of the landlord for our office space in Los Angeles, California.

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 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.

10


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 December 31, 2020 and June 30, 2020, precious metals held under financing arrangements totaled $160.3 million and $178.6 million respectively.

The Company’s precious metals held under financing arrangements are marked-to-market.

Inventories

The Company's inventory primarily includes bullion and bullion coins, which 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 costs of the raw precious metal, and (ii) a published premium paid at acquisition of the metal. The premium is attributable to the additional value of the product in its finished goods form, and the market value attributable solely to the premium may be readily determined, as it is published by multiple reputable 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.

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 condensed consolidated balance sheets.  Our finance leases (previously considered by the Company as capital leases prior to our adoption of ASC 842) are another type of ROU asset, but are classified in the condensed consolidated balance sheets as a component of property, plant, and equipment at the present value of the lease payments.

For leases that contain termination options, where the rights to terminate are held by either us, the lessor, or both parties and it is reasonably certain that we will exercise that option, we factor these extended or shortened lease terms into the minimum lease payments.  The ROU assets also 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. Finance lease cost is recognized as a combination of the amortization expense for the ROU assets and interest expense for the outstanding lease liabilities using the discount rate discussed above. 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. Our lease agreements do not contain any significant residual value guarantees or material restrictive covenants. Components of operating lease expense for the three and six months ended December 31, 2020 and 2019 were as follows:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

Operating lease costs

 

$

350

 

 

 

$

350

 

 

 

$

699

 

 

 

$

699

 

Short term and variable lease costs

 

 

91

 

 

 

 

99

 

 

 

 

224

 

 

 

 

192

 

Finance lease costs

 

 

5

 

 

 

 

5

 

 

 

 

11

 

 

 

 

11

 

Sublease income

 

 

 

 

 

 

(27

)

 

 

 

 

 

 

 

(54

)

Total lease costs, net

 

$

446

 

 

 

$

427

 

 

 

$

934

 

 

 

$

848

 

 

11


For the six months ended December 31, 2020 and 2019, we made cash payments for operating lease obligations of $0.8 million and $0.7 million, respectively. These payments are included in operating cash flows.  At December 31, 2020, the weighted-average remaining lease term under our capitalized operating leases was 4.2 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 December 31, 2020:

 

Years ending June 30,

 

Operating

Leases

 

 

2021 (6 months remaining)

 

 

767

 

 

2022

 

 

1,313

 

 

2023

 

 

834

 

 

2024

 

 

860

 

 

2025

 

 

816

 

 

Thereafter

 

 

370

 

 

Total lease payments

 

 

4,960

 

 

Less imputed interest

 

 

(490

)

 

 

 

$

4,470

 

(1)

Operating lease liability - current

 

$

1,362

 

(2)

Operating lease liability - long-term

 

 

3,108

 

(3)

 

 

$

4,470

 

(1)

 

 

(1)

Represents the present value of the capitalized operating lease liabilities as of December 31, 2020.

(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 no related party leases. 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.

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 commences 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 which are amortized on a straight-line basis over their economic useful lives ranging from three years 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.

12


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 the Intangibles - Goodwill and Other Topic 350 of the ASC.  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 a stable or improved fair value, 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 8.)

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 8.)

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 value of the investment is adjusted for the Company’s proportionate share of the investee’s earnings or losses, with the corresponding share of earnings or losses reported in other income, net. The carrying value of the investment is reduced by the amount of the dividends received from the equity-method investee, as they are considered a return of capital.

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 its equity method 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 are VIEs as of December 31, 2020 and June 30, 2020.

Other Long-Term Assets

Notes and other receivables, with terms greater than one year, are carried at amortized cost, net of any unamortized origination fees, which are recognized over the life of the note.  The determination of an allowance is based on historical experience and, as a result, can differ from actual losses incurred in the future. We charge off receivables at such time as it is determined collection will not occur.

13


On September 19, 2019, the Company, as lender, entered into a convertible revolving credit facility with a privately-held supplier and counterparty (the borrower) that provides the borrower an aggregate principal amount of up to $4.0 million, bearing interest at 12.0% per annum.  The facility expires on September 18, 2022.  The borrower has the right to prepay the credit facility at any time without premium or penalty. Outstanding principal amounts under the credit facility may, at the lender's discretion, be converted into up to 22.0% of the borrower's issued and outstanding common stock. The credit facility also grants the lender the right to repay the borrower's outstanding unrelated third-party debt, at any time, in exchange for up to 27.5% of the borrower’s issued and outstanding common stock.  In the event the borrower sells all or substantially all of its assets or has a change of control during the term of the facility, the lender is entitled to additional interest equal to 10.0% of the gross sales price in excess of $9.9 million. The credit facility collateral includes all: (i) account receivables; (ii) inventory; (iii) fixed assets; (iv) intellectual property; (v) contract rights; and (vi) deposit accounts, in each case subordinated to an unrelated third-party lender’s security interest.  

 

Effective October 1, 2020, A-Mark exercised its right to convert $1.0 million of the $3.5 million outstanding convertible revolving credit facility balance and exercised our right to repay in full borrower’s third-party loan, which totaled $5.8 million at the exercise date. As a result, the Company owns 31.2% of borrower’s outstanding common stock.  As of December 31, 2020 and June 30, 2020, the carrying value of the convertible revolving credit facility was $2.5 million and $3.5 million, respectively.

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 the 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

All derivative instruments are marked-to-market during the interval between the trade 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 Trade 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 trade order types and the key factors that determine when settlement occurs and when revenue is recognized for each type:

 

Traditional physical trade orders The quantity, specific product, and price are determined on the trade date.  Payment or sufficient credit is verified prior to delivery of the metals on the settlement date.

 

Consignment trade orders The Company delivers the items requested by the customer prior to establishing a firm trade 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 trade orders The quantity and type of metal is established at the trade 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 trade orders The quantity, specific product, and price are determined at trade 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 trade date). Revenue on margin trade orders is recognized when the order is paid in full and delivered to the customer.

 

Borrowed precious metals trade orders for unallocated positions Customers may purchase unallocated metal positions in the Company's inventory.  The quantity and type of metal is established at the trade 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.

14


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 components of accounts payable and other current liabilities in the condensed consolidated balance sheets.

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 futures contracts traded on national futures exchanges or forward contracts with credit worthy financial institutions.  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.

The Company enters into futures and forward 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 (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 11.)

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 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.  In aggregate, these types of service revenues account for less than 1% of the Company's combined revenue from all revenue streams.

Interest Income

In accordance with the Interest Topic 835 of the ASC ("ASC 835") 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 trade orders over the period during which customers have opted to defer making full payment on the purchase of metals.

15


 

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 trade orders —  Spot deferred trade orders are a special type of forward delivery trade 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 trade.  Even though the contract allows for physical delivery, it rarely occurs for this type of trade.  As a result, revenue is not recorded from these transactions, because no product is delivered to the customer.  Spot deferred trades 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 trade 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 14.)  Additionally, the Company amortizes capitalized loan costs to interest expense over the period of the loan agreement.

 

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 trades.  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.

Other Income and Expense, Net

The Company's other income and expense is derived from the Company's proportional interest in the reported net income or loss of our investees that are accounted for under the equity method of accounting (see Note 9), royalty income, and costs associated with the purchase of Goldline.

Advertising

Advertising expense is recorded as incurred and was $0.6 million and $0.3 million, respectively, for the three months ended December 31, 2020 and 2019.  Advertising expense was $1.3 million and $0.8 million, respectively, for the six months ended December 31, 2020 and 2019.

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 $1.8 million and $1.4 million, respectively, for the three months ended December 31, 2020 and 2019.  Shipping and handling costs incurred totaled $5.0 million and $2.8 million, respectively, for the six months ended December 31, 2020 and 2019.

16


Share-Based Compensation

The Company accounts for equity awards under the provisions of the 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 16.)

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 the 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 12 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. Basic EPS is computed by dividing net earnings (losses) by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net earnings (losses) by the sum of the weighted average number of common shares and dilutive common stock equivalents outstanding during the period. Diluted EPS reflects the total potential dilution that could occur from outstanding equity awards, including unexercised stock options, utilizing the treasury stock method.

A reconciliation of shares used in calculating basic and diluted earnings per common shares for the three and six months ended December 31, 2020 and 2019, is presented below.

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

Basic weighted average shares outstanding

 

 

7,063

 

 

 

 

7,031

 

 

 

 

7,065

 

 

 

 

7,031

 

Effect of common stock equivalents — stock issuable

   under outstanding equity awards

 

 

650

 

 

 

 

25

 

 

 

 

545

 

 

 

 

44

 

Diluted weighted average shares outstanding

 

 

7,713

 

 

 

 

7,056

 

 

 

 

7,610

 

 

 

 

7,075

 

 

Dividends

Dividends are recorded if and when they are declared by the Board of Directors.

On September 3, 2020, the Company's Board of Directors declared a non-recurring special dividend of $1.50 per share to common stock shareholders of record at the close of business on September 21, 2020. On October 29, 2020, the Company's Board of Directors declared a non-recurring special dividend of $1.50 per share to common stock shareholders of record at the close of business on November 23, 2020.  In the aggregate, the Company paid $21.2 million in dividends for the six months ended December 31, 2020.

17


Recently Adopted Accounting Pronouncements

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”).

We adopted ASU No. 2018-15, Intangibles—Goodwill and Other: Internal-Use Software (Subtopic 350-40), which provides additional guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement. The adoption of this guidance did not have a material impact on our consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04 (“ASU 2020-04”), Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as interbank offered rates and LIBOR. This guidance includes practical expedients for contract modifications due to reference rate reform. Generally, contract modifications related to reference rate reform may be considered an event that does not require remeasurement or reassessment of a previous accounting determination at the modification date. This guidance is effective immediately; however, it is only available through December 31, 2022. The Company will continue to evaluate the standard as well as additional changes, modifications, or interpretations which may impact the Company.

In December 2019, the FASB issued ASU 2019-12 (“ASU 2019-12”), Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes to simplify the accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard will be effective for us beginning July 1, 2021, with early adoption permitted. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

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 requirements, known as the current expected credit loss model ("CECL") will require entities to adopt an impairment model based on expected losses rather than incurred losses. This update is effective for the Company on July 1, 2023 (for fiscal years beginning after December 15, 2022 including interim periods within those fiscal years). We are currently evaluating the potential impact of this standard on our 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 carrying amounts of the Company's other long-term assets, which include a note receivable due from a customer, approximate fair value as of December 31, 2020.

18


The Company’s fixed-rate notes payable is reported at its aggregate principal amount less unamortized original issue discount and deferred financing costs on the accompanying consolidated balance sheets. The fair value of the notes payable 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 fixed-rate notes payable of December 31, 2020 and June 30, 2020:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

June 30, 2020

 

 

 

Carrying

Amount

 

 

Fair value

 

 

Carrying

Amount

 

 

Fair value

 

Notes payable

 

$

92,874

 

 

$

102,084

 

 

$

92,517

 

 

$

101,017

 

 

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. Topic 820 of the ASC 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 primarily includes bullion and bullion coins, which 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 costs of the raw precious metal, and ii) a published premium paid at acquisition of the metal. The premium is attributable to the additional value of the product in its finished goods form and the market value attributable solely to the premium is readily determined, as it is published by multiple reputable 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 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.

19


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.

The following tables present information about the Company's assets and liabilities measured at fair value on a recurring basis as of December 31, 2020 and June 30, 2020, aggregated by the level in the fair value hierarchy within which the measurements fall:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Price in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active Markets

 

 

Significant Other

 

 

Significant

 

 

 

 

 

 

 

for Identical

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

 

Instruments

 

 

Inputs

 

 

Inputs

 

 

 

 

 

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventories(1)

 

$

517,673

 

 

$

 

 

$

 

 

$

517,673

 

Precious metals held under financing arrangements

 

 

160,255

 

 

 

 

 

 

 

 

 

160,255

 

Derivative assets — open sale and purchase commitments, net

 

 

57,826

 

 

 

 

 

 

 

 

 

57,826

 

Derivative assets — forward contracts

 

 

23

 

 

 

 

 

 

 

 

 

23

 

Total assets, valued at fair value

 

$

735,777

 

 

$

 

 

$

 

 

$

735,777

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities on borrowed metals

 

$

141,796

 

 

$

 

 

$

 

 

$

141,796

 

Product financing arrangements

 

 

272,531

 

 

 

 

 

 

 

 

$

272,531

 

Derivative liabilities — margin accounts

 

 

4,162

 

 

 

 

 

 

 

 

 

4,162

 

Derivative liabilities — open sale and purchase commitments, net

 

 

2,165

 

 

 

 

 

 

 

 

 

2,165

 

Derivative liabilities — futures contracts

 

 

33,129

 

 

 

 

 

 

 

 

 

33,129

 

Derivative liabilities — forward contracts

 

 

11,353

 

 

 

 

 

 

 

 

 

11,353

 

Total liabilities, valued at fair value

 

$

465,136

 

 

$

 

 

$

 

 

$

465,136

 

 

(1)

Commemorative coin inventory totaling $9 thousand is held at lower of cost or net realizable value and thus is excluded from the inventories balance shown in this table.

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2020

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Price in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active Markets

 

 

Significant Other

 

 

Significant

 

 

 

 

 

 

 

for Identical

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

 

Instruments

 

 

Inputs

 

 

Inputs

 

 

 

 

 

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventories(1)

 

$

321,264

 

 

$

 

 

$

 

 

$

321,264

 

Precious metals held under financing arrangements

 

 

178,577

 

 

 

 

 

 

 

 

 

178,577

 

Derivative assets — open sale and purchase commitments, net

 

 

46,224

 

 

 

 

 

 

 

 

 

46,224

 

Derivative assets — forward contracts

 

 

101

 

 

 

 

 

 

 

 

 

101

 

Total assets, valued at fair value

 

$

546,166

 

 

$

 

 

$

 

 

$

546,166

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities on borrowed metals

 

$

168,206

 

 

$

 

 

$

 

 

$

168,206

 

Product financing arrangements

 

 

74,678

 

 

 

 

 

 

 

 

 

74,678

 

Derivative liabilities — margin accounts

 

 

5,380

 

 

 

 

 

 

 

 

 

5,380

 

Derivative liabilities — open sale and purchase commitments, net

 

 

4,349

 

 

 

 

 

 

 

 

 

4,349

 

Derivative liabilities — futures contracts

 

 

12,477

 

 

 

 

 

 

 

 

 

12,477

 

Derivative liabilities — forward contracts

 

 

3,208

 

 

 

 

 

 

 

 

 

3,208

 

Total liabilities, valued at fair value

 

$

268,298

 

 

$

 

 

$

 

 

$

268,298

 

 

(1)

Commemorative coin inventory totaling $17 thousand is held at lower of cost or net realizable value thus is excluded from the inventories balance shown in this table.

20


There were no transfers in or out of Level 2 or 3 from other levels within the fair value hierarchy during the reported periods.

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 ongoing basis but are subject to fair value adjustments only under certain circumstances. These include:(i) equity method investments that are written down to fair value when a decline in the fair value is determined to be other-than-temporary, (ii) property, plant, and equipment and definite-lived intangibles, or (iii) goodwill and indefinite-lived intangibles, all of which are written down to fair value when they are held for sale or determined to be impaired. The resulting fair value measurements of the assets are considered to be Level 3 measurements. Determining fair value requires the exercise of significant judgments, including judgments about 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.

4.

RECEIVABLES

Receivables consist of the following as of December 31, 2020 and June 30, 2020:

 

in thousands

 

 

 

 

 

 

 

 

 

 

December 31,

2020

 

 

June 30,

2020

 

Customer trade receivables

 

$

7,015

 

 

$

6,047

 

Wholesale trade advances

 

 

1,480

 

 

 

10,167

 

Due from brokers

 

 

93,369

 

 

 

32,928

 

 

 

$

101,864

 

 

$

49,142

 

 

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. Due from brokers principally consists of the margin requirements held at brokers related to open futures contracts. (See Note 11.)

5.

SECURED LOANS RECEIVABLE

Below is a summary of the carrying value of our secured loans as of December 31, 2020 and June 30, 2020:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

December 31,

2020

 

 

June 30,

2020

 

 

Secured loans originated

 

$

37,865

 

 

$

30,019

 

 

Secured loans originated - with a related party

 

 

135

 

 

 

8,797

 

 

 

 

 

38,000

 

 

 

38,816

 

 

Secured loans acquired

 

 

57,817

 

(1)

 

24,894

 

(2)

 

 

$

95,817

 

 

$

63,710

 

 

 

(1)

Includes $6 thousand of loan premium as of December 31, 2020.

(2)

Includes $6 thousand of loan premium as of June 30, 2020.

Secured Loans - Originated: Secured loans include short-term loans, which include a combination of on-demand lines and short-term facilities that are made to our customers. These loans are fully secured by the customers' assets that include bullion, numismatic, and semi-numismatic material, which are typically held in safekeeping by the Company.  (See Note 13 for further information regarding our secured loans made to related parties.)

21


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, numismatic, and semi-numismatic material that are held in safekeeping by the Company. Typically, the seller of the loan portfolio retains the responsibility for the servicing and administration of the loans.

As of December 31, 2020 and June 30, 2020, our secured loans carried weighted-average effective interest rates of 8.7% and 8.9%, 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 who 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 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 or numismatic collateral, 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.

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 two classes of secured loan receivables are defined by collateral type: (i) bullion items, and (ii) numismatic and semi-numismatic coins.  The required loan-to-value ratio varies with the class of loans. Typically, the Company requires a loan-to-value ratio of approximately 75% for bullion and 65% for numismatic collateral.  The reason for the lower loan-to-value ratio for numismatic loans is that, on a percentage basis, more of the value of the numismatic coin relates to its premium value rather than its underlying commodity value.

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

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

June 30, 2020

 

Bullion

 

$

72,599

 

 

 

75.8

%

 

$

36,445

 

 

 

57.2

%

Numismatic and semi-numismatic

 

 

23,218

 

 

 

24.2

%

 

 

27,265

 

 

 

42.8

%

 

 

$

95,817

 

 

 

100.0

%

 

$

63,710

 

 

 

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 collateral values are updated by numismatic specialists when loan terms are renewed (typically in 180 days).

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 loan-to-value ratio, the loan is considered in default.  The collateral material (either bullion or numismatic) underlying such loans is then sold by the Company to satisfy all amounts due under the loan.

22


Loans with loan-to-value 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 a loan-to-value ratio of 75% or more and (ii) loans with a loan-to-value ratio of less than 75%:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

June 30, 2020

 

Loan-to-value of less than 75%

 

$

89,177

 

 

 

93.1

%

 

$

58,296

 

 

 

91.5

%

Loan-to-value of 75% or more

 

 

6,640

 

 

 

6.9

%

 

 

5,414

 

 

 

8.5

%

 

 

$

95,817

 

 

 

100.0

%

 

$

63,710

 

 

 

100.0

%

 

The Company had no loans with a loan-to-value ratio in excess of 100% as of December 31, 2020 and June 30, 2020.

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 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 December 31, 2020 and June 30, 2020, the Company had no allowance for secured loan losses.

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, non-performing, or 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 six months ended December 31, 2020 and 2019, the Company incurred no loan impairment costs.

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 December 31, 2020 and June 30, 2020:

 

in thousands

 

 

 

 

 

 

 

 

 

 

December 31,

2020

 

 

June 30,

2020

 

Inventory held for sale

 

$

122,107

 

 

$

153,412

 

Repurchase arrangements with customers

 

 

99,964

 

 

 

70,988

 

Consignment arrangements with customers

 

 

1,617

 

 

 

2,842

 

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

 

 

9

 

 

 

17

 

Borrowed precious metals

 

 

21,454

 

 

 

19,344

 

Product financing arrangements, restricted

 

 

272,531

 

 

 

74,678

 

 

 

$

517,682

 

 

$

321,281

 

 

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, and product financing arrangements.  As of December 31, 2020 and June 30, 2020, the inventory held for sale totaled $122.1 million and $153.4 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.

23


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 December 31, 2020 and June 30, 2020, included within inventories is $100.0 million and $71.0 million, respectively, of precious metals products subject to repurchase arrangements with customers.

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 December 31, 2020 and June 30, 2020 totaled $1.6 million and $2.8 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. 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. Our commemorative coins are not hedged, and are included in inventories at the lower of cost or net realizable value and totaled $9,000 and $17,000 as of December 31, 2020 and June 30, 2020, 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 $21.5 million and $19.3 million as of December 31, 2020 and June 30, 2020, respectively, with a corresponding offsetting obligation reflected as liabilities on borrowed metals on the condensed consolidated balance sheets.

Product Financing Arrangements.  In substance, 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 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 $272.5 million and $74.7 million as of December 31, 2020 and June 30, 2020, respectively.

The Company mitigates market risk of its physical inventory and open commitments through commodity hedge transactions. (See Note 11.)  As of December 31, 2020 and June 30, 2020, the unrealized gains resulting from the difference between market value and cost of physical inventory were $21.5 million and $6.5 million, respectively.

Premium component of inventory

The premium component, at market value, included in the inventory as of December 31, 2020 and June 30, 2020 totaled $12.0 million and $3.7 million, respectively.

24


7.

PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consists of the following at December 31, 2020 and June 30, 2020:

 

in thousands

 

 

 

 

 

 

 

 

 

 

December 31,

2020

 

 

June 30,

2020

 

Office furniture, and fixtures

 

$

2,153

 

 

$

2,142

 

Computer equipment

 

 

943

 

 

 

900

 

Computer software

 

 

5,289

 

 

 

5,288

 

Plant equipment

 

 

4,198

 

 

 

3,450

 

Building

 

 

446

 

 

 

322

 

Leasehold improvements

 

 

2,804

 

 

 

2,804

 

Total depreciable assets

 

 

15,833

 

 

 

14,906

 

Less: Accumulated depreciation and amortization

 

 

(9,956

)

 

 

(9,267

)

Land

 

 

36

 

 

 

36

 

Property, plant, and equipment, net

 

$

5,913

 

 

$

5,675

 

 

Depreciation expense for the three months ended December 31, 2020 and 2019 was $342,000 and $412,000, respectively.  Depreciation expense for the six months ended December 31, 2020 and 2019 was $689,000 and $827,000, respectively.  For the periods presented, no depreciation or amortization expense was allocated to cost of sales.

8.

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 acquisition of A-Mark by SGI in July 2005, the accounts of the Company were adjusted using the push down basis of accounting to recognize the allocation of the consideration paid to the respective net assets acquired. In accordance with the push down basis of accounting, the Company's net assets were adjusted to their fair values as of the date of the acquisition based upon an independent appraisal.

 

In connection with the Company's business combination with 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.

 

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.

25


Carrying Value

The carrying value of goodwill and other purchased intangibles as of December 31, 2020 and June 30, 2020 is as described below:

 

dollar amounts in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

June 30, 2020

 

 

 

Estimated

Useful

Lives

(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

 

$

8,998

 

 

$

(7,582

)

 

$

 

 

$

1,416

 

 

$

8,998

 

 

$

(7,307

)

 

$

 

 

$

1,691

 

Non-compete and other

 

3 - 5

 

 

2,300

 

 

 

(2,222

)

 

 

 

 

 

78

 

 

 

2,300

 

 

 

(2,187

)

 

 

 

 

 

113

 

Employment agreement

 

3

 

 

295

 

 

 

(295

)

 

 

 

 

 

 

 

 

295

 

 

 

(288

)

 

 

 

 

 

7

 

Intangibles subject to amortization

 

 

 

 

11,593

 

 

 

(10,099

)

 

 

 

 

 

1,494

 

 

 

11,593

 

 

 

(9,782

)

 

 

 

 

 

1,811

 

Trade names and trademarks

 

Indefinite

 

 

4,454

 

 

 

 

 

 

(1,291

)

 

 

3,163

 

 

 

4,454

 

 

 

 

 

 

(1,291

)

 

 

3,163

 

Identifiable intangible assets

 

 

 

$

16,047

 

 

$

(10,099

)

 

$

(1,291

)

 

 

4,657

 

 

$

16,047

 

 

$

(9,782

)

 

$

(1,291

)

 

$

4,974

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

Indefinite

 

$

10,245

 

 

$

 

 

$

(1,364

)

 

$

8,881

 

 

$

10,245

 

 

$

 

 

$

(1,364

)

 

$

8,881

 

 

The Company's intangible assets are subject to amortization except for trade-names and trademarks, which have an indefinite life. Intangible assets subject to amortization are amortized using the straight-line method over their useful lives, which are estimated to be three to fifteen years.  Amortization expense related to the Company's intangible assets for the three months ended December 31, 2020 and 2019 was $163,000 and $255,000, respectively. Amortization expense related to the Company's intangible assets for the six months ended December 31, 2020 and 2019 was $317,000 and $508,000, respectively.  For the presented periods, no amortization expense was allocated to cost of sales.

Impairment

The accumulated impairment charge of $2.7 million (goodwill and indefinite-lived intangible assets) was a non-recurring charge for fiscal 2018 related to the Direct Sales segment.  No further impairment of goodwill or indefinite-lived intangible assets has occurred since fiscal 2018.

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

 

2021 (6 months remaining)

 

 

312

 

2022

 

 

601

 

2023

 

 

158

 

2024

 

 

77

 

2025

 

 

60

 

Thereafter

 

 

286

 

Total

 

$

1,494

 

 

9.

LONG-TERM INVESTMENTS

The Company has four investments in privately-held entities, each of which is a precious metals retailer and customer of the Company. Depending on the entity, the Company may have one or more of the following in place: (i) an exclusive supplier agreement, subject to certain limitations; (ii) a product fulfillment services and storage agreement; and (iii) the right to appoint a director to the entity's board of directors. The Company has determined that it is appropriate to account for each of these investments under the equity method of accounting.

26


The following table shows the carrying value and ownership percentage of the Company's investment in each entity:

 

 

 

December 31, 2020

 

 

June 30, 2020

 

Entity

 

Carrying

Value

 

 

Ownership

Percentage

 

 

Carrying

Value

 

 

Ownership

Percentage

 

 

 

(in thousands)

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

Company A

 

$

3,113

 

 

 

7.4

%

 

$

2,529

 

 

 

7.4

%

Company B

 

 

18,876

 

 

 

20.8

%

 

 

13,296

 

 

 

20.6

%

Company C

 

 

1,012

 

 

 

10.0

%

 

 

938

 

 

 

10.0

%

Company D

 

 

7,012

 

 

 

31.2

%

 

 

 

 

 

(—

%)

 

 

$

30,013

 

 

 

 

 

 

$

16,763

 

 

 

 

 

 

The Company considers these equity method investees to be related parties.  See Note 13 for a summary of the Company's aggregate balances and activity with these related party entities.

10.

ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES

Accounts payable and other current liabilities consist of the following:

 

in thousands

 

 

 

 

 

 

 

 

 

 

December 31,

2020

 

 

June 30,

2020

 

Trade payables to customers

 

$

1,259

 

 

$

2,316

 

Advances from customers

 

 

128,010

 

 

 

129,624

 

Deferred revenue

 

 

10,712

 

 

 

6,141

 

Other accounts payable

 

 

2,391

 

 

 

2,849

 

 

 

$

142,372

 

 

$

140,930

 

 

11.

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 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 Topic 815 of the ASC, 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.

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 market value changes, created by changes in the underlying commodity market 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.

27


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. Futures and forwards contracts open at end of any period typically settle within 30 days. 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 policy is to substantially hedge its inventory position, net of open sale and purchase commitments that are subject to price risk. The Company regularly enters into precious metals commodity forward and futures contracts with financial institutions to hedge price changes that would cause changes in the value of its physical metals positions and purchase commitments and sale commitments. 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 metals 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 represent 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.  In the table below, the aggregate gross and net derivative receivables and payables balances are presented by contract type and type of hedge, as of December 31, 2020 and June 30, 2020.

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

June 30, 2020

 

 

 

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

 

$

66,183

 

 

$

(8,357

)

 

$

 

 

$

57,826

 

 

$

48,896

 

 

$

(2,672

)

 

$

 

 

$

46,224

 

Forward contracts

 

 

23

 

 

 

 

 

 

 

 

 

23

 

 

 

101

 

 

 

 

 

 

 

 

 

101

 

 

 

$

66,206

 

 

$

(8,357

)

 

$

 

 

$

57,849

 

 

$

48,997

 

 

$

(2,672

)

 

$

 

 

$

46,325

 

Nettable derivative liabilities:

 

 

 

Open sale and purchase commitments

 

$

2,638

 

 

$

(473

)

 

$

 

 

$

2,165

 

 

 

5,653

 

 

$

(1,304

)

 

$

 

 

$

4,349

 

Margin accounts

 

 

6,102

 

 

 

 

 

 

(1,940

)

 

 

4,162

 

 

 

14,616

 

 

 

 

 

 

(9,236

)

 

 

5,380

 

Future contracts

 

 

33,129

 

 

 

 

 

 

 

 

 

33,129

 

 

 

12,477

 

 

 

 

 

 

 

 

 

12,477

 

Forward contracts

 

 

11,353

 

 

 

 

 

 

 

 

 

11,353

 

 

 

3,208

 

 

 

 

 

 

 

 

 

3,208

 

 

 

$

53,222

 

 

$

(473

)

 

$

(1,940

)

 

$

50,809

 

 

$

35,954

 

 

$

(1,304

)

 

$

(9,236

)

 

$

25,414

 

 

Gains or Losses on Derivative Instruments

The Company records the derivative at the trade date with a corresponding unrealized gains (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.

28


Below is a summary of the net gains (losses) on derivative instruments for the three and six months ended December 31, 2020 and 2019.

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

Gains (losses) on derivative instruments:

 

 

 

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

 

$

(92,552

)

 

 

$

(15,356

)

 

 

$

(14,275

)

 

 

$

9,755

 

Realized (losses) gains on future commodity contracts, net

 

 

(2,579

)

 

 

 

4,334

 

 

 

 

(107,414

)

 

 

 

(12,111

)

 

 

$

(95,131

)

 

 

$

(11,022

)

 

 

$

(121,689

)

 

 

$

(2,356

)

 

The Company’s net gains (losses) on derivative instruments, as shown in the table above, were substantially offset by the changes in fair market value of the underlying precious metals inventory and open sale and purchase commitments, 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 is subject to price risk as of December 31, 2020 and June 30, 2020.

 

in thousands

 

 

 

 

 

 

 

 

 

 

December 31,

2020

 

 

June 30,

2020

 

Inventories

 

$

517,682

 

 

$

321,281

 

Precious metals held under financing arrangements

 

 

160,255

 

 

 

178,577

 

 

 

 

677,937

 

 

 

499,858

 

Less unhedgeable inventories:

 

 

 

 

 

 

 

 

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

 

 

(9

)

 

 

(17

)

Premium on metals position

 

 

(11,967

)

 

 

(3,684

)

Precious metal value not hedged

 

 

(11,976

)

 

 

(3,701

)

 

 

 

665,961

 

 

 

496,157

 

Commitments at market:

 

 

 

 

 

 

 

 

Open inventory purchase commitments

 

 

723,536

 

 

 

514,553

 

Open inventory sales commitments

 

 

(309,332

)

 

 

(309,134

)

Margin sale commitments

 

 

(6,102

)

 

 

(14,652

)

In-transit inventory no longer subject to market risk

 

 

(6,728

)

 

 

(3,605

)

Unhedgeable premiums on open commitment positions

 

 

4,948

 

 

 

2,779

 

Borrowed precious metals

 

 

(141,796

)

 

 

(168,206

)

Product financing arrangements

 

 

(272,531

)

 

 

(74,678

)

Advances on industrial metals

 

 

696

 

 

 

318

 

 

 

 

(7,309

)

 

 

(52,625

)

Precious metal subject to price risk

 

 

658,652

 

 

 

443,532

 

Precious metal subject to derivative financial instruments:

 

 

 

 

 

 

 

 

Precious metals forward contracts at market values

 

 

126,154

 

 

 

73,948

 

Precious metals futures contracts at market values

 

 

532,044

 

 

 

369,842

 

Total market value of derivative financial instruments

 

 

658,198

 

 

 

443,790

 

 

 

 

 

 

 

 

 

 

Net precious metals subject to commodity price risk

 

$

454

 

 

$

(258

)

 

29


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 December 31, 2020 and June 30, 2020, the Company had the following outstanding commitments and open forward and future contracts:

 

in thousands

 

 

 

 

 

 

 

 

 

 

December 31,

2020

 

 

June 30,

2020

 

Purchase commitments

 

$

723,536

 

 

$

514,553

 

Sales commitments

 

$

(309,332

)

 

$

(309,134

)

Margin sales commitments

 

$

(6,102

)

 

$

(14,652

)

Open forward contracts

 

$

126,154

 

 

$

73,948

 

Open futures contracts

 

$

532,044

 

 

$

369,842

 

 

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. At December 31, 2020, 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 accounting treatment of our foreign currency exchange derivative instruments is similar to the accounting treatment of our commodity derivative instruments, that is, the change in the value in the financial instrument is immediately recognized as a component of cost of sales.

Unrealized gains on foreign exchange derivative instruments related to our open trades are shown on the face of the condensed consolidated statements of income totaled $19,000 and $125,000 for the three months ended December 31, 2020 and 2019, respectively. Unrealized (losses) gains on foreign exchange derivative instruments shown on the face of the condensed consolidated statements of income totaled ($78,000) and $3,000 for the six months ended December 31, 2020 and 2019, respectively. 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 are as follows:

 

in thousands

 

 

 

 

 

 

 

 

 

 

December 31,

2020

 

 

June 30,

2020

 

Foreign exchange forward contracts

 

$

2,302

 

 

$

4,599

 

Open sale and purchase commitment transactions, net

 

$

1,442

 

 

$

3,475

 

 

12.

INCOME TAXES

Net income from operations before provision for income taxes is shown below:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

U.S.

 

$

11,794

 

 

 

$

1,681

 

 

 

$

42,005

 

 

 

$

2,082

 

Foreign

 

 

6

 

 

 

 

6

 

 

 

 

12

 

 

 

 

13

 

 

 

$

11,800

 

 

 

$

1,687

 

 

 

$

42,017

 

 

 

$

2,095

 

 

30


The provision for income tax expense by jurisdiction and the effective tax rate for the three and six months ended December 31, 2020 and 2019 are shown below:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

Federal

 

$

2,344

 

 

 

$

353

 

 

 

$

8,193

 

 

 

$

438

 

State and local

 

 

184

 

 

 

 

78

 

 

 

 

842

 

 

 

 

97

 

Foreign

 

 

58

 

 

 

 

1

 

 

 

 

62

 

 

 

 

2

 

Income tax expense

 

$

2,586

 

 

 

$

432

 

 

 

$

9,097

 

 

 

$

537

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective tax rate

 

 

21.9

%

 

 

 

25.6

%

 

 

 

21.7

%

 

 

 

25.6

%

 

Tax Balances and Activity

Income Taxes Payable

As of December 31, 2020 and June 30, 2020, income taxes payable totaled $0.7 million and $2.1 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 December 31, 2020 and June 30, 2020, 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 of December 31, 2020 and June 30, 2020

As of December 31, 2020 and June 30, 2020, 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 asset of $1.0 million and a federal deferred tax liability of $1.1 million, respectively.

Net Operating Loss Carryforwards and Tax Credits

As of December 31, 2020 and June 30, 2020, the Company has approximately $12.6 million and $12.6 million of state net operating loss carryforwards, respectively.  As of December 31, 2020 and June 30, 2020, the Company’s tax-effected net operating loss carryforwards were $0.9 million and $0.9 million respectively. The state net operating loss carryforwards start to expire in the fiscal year ending June 30, 2025.

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 a tax benefit (i.e., an unrecognized tax benefit) on its 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.  For the six months ended December 31, 2020, there was no material movement in unrecognized tax benefits including interest and penalties.

13.

RELATED PARTY TRANSACTIONS

Related parties are entities that the Company controls or has the ability to significantly influence. 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 comparable 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").  In March 2014, SGI distributed all of the shares of common stock of A-Mark to its stockholders, effecting a spinoff of A-Mark from SGI. As a result of this distribution the Company became a publicly traded company independent from SGI. Also, SGI and the Company have a common chief executive officer.

31


 

2)

SilverTowne, L.P. SilverTowne L.P. is a non-controlling owner of AMST (i.e., the Company's minting operations).

 

3)

Equity method investees. The Company has four investments in privately held entities, each of which is a precious metals retailer and customer of the Company. Depending on the entity, the Company may have one or more of the following in place: (i) an exclusive supplier agreement, subject to certain limitations; (ii) a product fulfillment services and storage agreement; and (iii) the right to appoint a director to the entity's board of directors.

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. Reported transactions from the comparable prior period have been updated, as needed, to include the balances and activity according to our current list of related parties.

Balances with Related Parties

Receivables and Payables, Net

As of December 31, 2020 and June 30, 2020, the Company had related party receivables and payables balances as set forth below:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

 

June 30, 2020

 

 

 

Receivables

 

 

 

Payables

 

 

 

Receivables

 

 

 

Payables

 

Stack's Bowers Galleries

 

$

325

 

(1)

 

$

 

 

 

$

7,981

 

 

 

$

 

Equity method investees

 

 

4,716

 

(2)

 

 

6,074

 

(3)

 

 

5,301

 

 

 

 

3,421

 

SilverTowne

 

 

238

 

(2)

 

 

 

 

 

 

77

 

 

 

 

 

 

 

$

5,279

 

 

 

$

6,074

 

 

 

$

13,359

 

 

 

$

3,421

 

 

(1)

Balance principally includes two secured lines of credit with a balance of $0 and $0.1 million (shown as a component of secured loans receivable); and $0.2 million of receivables, net (shown as components of receivables, and derivative assets). See "Secured Loans Receivable” below.

(2)

Balance primarily represents receivables, net (shown as components of receivables, derivative assets and other long-term assets). See "Other Long-term Assets” below.

(3)

Balance primarily represents payables, net (shown as components of accounts payables and derivative liabilities).

Long-term Investments

As of December 31, 2020 and June 30, 2020, the aggregate carrying balance of the equity method investments was $30.0 million and $16.8 million, respectively (see Note 9).

Secured Loans Receivable

On September 19, 2017, CFC entered into a loan agreement with Stack's Bowers Galleries providing a secured line of credit, bearing interest at a competitive rate per annum, with a maximum borrowing line (subject to temporary increases) of $5.3 million. The loan is secured by precious metals and numismatic products. As of December 31, 2020 and June 30, 2020, the outstanding principal balance of this loan was $0.1 million and $0.7 million, respectively.

On March 1, 2018, CFC entered into a loan agreement with Stack's Bowers Galleries providing a secured line of credit on the wholesale value (i.e., the excess over the spot value of the metal), of numismatic products bearing interest at a competitive rate per annum, with a maximum borrowing line (subject to temporary increases) of $10.0 million. In addition to the annual rate of interest, the Company is entitled to receive a participation interest equal to 10% of the net profits realized by Stack's Bowers Galleries on the ultimate sale of the products. As of December 31, 2020 and June 30, 2020, the outstanding principal balance of this loan was $0.0 million and $8.0 million, respectively.

Other Long-term Assets

On September 19, 2019, the Company, as lender, entered into a convertible revolving credit facility with one of its privately-held customers (the borrower) that provides the borrower an aggregate principal amount of up to $4.0 million, bearing interest at 12.0% per annum.  The convertible revolving credit facility collateral includes all: (i) account receivables; (ii) inventory; (iii) fixed assets; (iv) intellectual property; (v) contract rights; and (vi) deposit accounts, in each case subordinated to an unrelated third-party lender’s security interest.  As of December 31, 2020 and June 30, 2020, the carrying value of the convertible revolving credit facility was $2.5 million and $3.5 million, respectively. (See Note 2 for further details.)

32


Activity with Related Parties

Sales and Purchases

During the three and six months ended December 31, 2020 and 2019, the Company made sales and purchases to various companies, which have been deemed to be related parties, as follows:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

December 31, 2020

 

 

December 31, 2019

 

 

December 31, 2020

 

 

December 31, 2019

 

 

 

Sales

 

 

Purchases

 

 

Sales

 

 

Purchases

 

 

Sales

 

 

Purchases

 

 

Sales

 

 

Purchases

 

Stack's Bowers Galleries

 

$

14,877

 

 

$

14,322

 

 

$

7,764

 

 

$

4,407

 

 

$

36,831

 

 

$

36,335

 

 

$

18,765

 

 

$

21,166

 

Equity method investees

 

 

391,617

 

 

 

5,326

 

 

 

178,006

 

 

 

6,487

 

 

 

872,117

 

 

 

7,872

 

 

 

353,550

 

 

 

21,326

 

SilverTowne L.P.

 

 

2,720

 

 

 

 

 

 

2,192

 

 

 

74

 

 

 

6,837

 

 

 

4,769

 

 

 

3,719

 

 

 

655

 

 

 

$

409,214

 

 

$

19,648

 

 

$

187,962

 

 

$

10,968

 

 

$

915,785

 

 

$

48,976

 

 

$

376,034

 

 

$

43,147

 

 

Interest Income

During the three and six months ended December 31, 2020 and 2019, the Company earned interest income related to loans made to Stack's Bowers Galleries and to financing arrangements (including repurchase agreements) with affiliated companies, as set forth below:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

Interest income from secured loans receivables

 

$

83

 

 

 

$

243

 

 

 

$

153

 

 

 

$

541

 

Interest income from finance products and repurchase arrangements

 

 

1,940

 

 

 

 

1,513

 

 

 

 

3,807

 

 

 

 

3,140

 

 

 

$

2,023

 

 

 

$

1,756

 

 

 

$

3,960

 

 

 

$

3,681

 

 

Other Income

During the three months ended December 31, 2020 and 2019, the Company recorded its proportional share of its equity method investee's net income as other income that totaled $2,362,000 and $102,000, respectively. During the six months ended December 31, 2020 and 2019, the Company recorded its proportional share of its equity method investee's net income as other income that totaled $6,488,000 and $114,000, respectively.

During the three months ended December 31, 2020 and 2019, the Company earned royalty income related to one of CFC's secured lending agreements with Stack's Bowers Galleries that totaled $205,000 and $47,000, respectively. During the six months ended December 31, 2020 and 2019, the Company earned royalty income related to one of CFC's secured lending agreements with Stack's Bowers Galleries that totaled $564,000 and $89,000, respectively.

14.

FINANCING AGREEMENTS

Lines of Credit

Effective March 27, 2020, through an amendment and restatement of the applicable credit documents, A-Mark renewed its uncommitted demand borrowing facility ("Trading Credit Facility") with a syndicate of banks. Under the agreements, Coöperatieve Rabobank U.A. acts as joint lead lender and administrative agent and Natixis acts as joint lead arranger and syndication agent for the syndicate. The Trading Credit Facility is secured by substantially all of the Company’s assets on a first priority basis.

As of December 31, 2020, and as a result of various amendments, the Trading Credit Facility provided the Company with access up to $270.0 million, featuring a $257.5 million base, with a $12.5 million accordion option.  The Trading Credit Facility is scheduled to terminate on March 26, 2021.  Since commencement of the Trading Credit Facility (i.e., March 31, 2016), the Company has incurred $4.7 million of accumulated loan costs.  These loan costs have been capitalized when incurred and are amortized over the term of the Trading Credit Facility.  As of December 31, 2020 and June 30, 2020, the remaining unamortized balance was approximately $0.4 million and $0.5 million, respectively.

33


The Company routinely uses the Trading Credit Facility to purchase and finance precious metals and for operating cash flow purposes. Amounts under the Trading Credit Facility bear interest based on London Interbank Offered Rate (“LIBOR”) plus a 2.50% margin for revolving credit line loans and a 4.50% margin for bridge loans (that is, for loans that exceed the available revolving credit line).  The one-month LIBOR rate was approximately 0.14% and 0.16% as of December 31, 2020 and June 30, 2020, respectively. Borrowings are due on demand and totaled $175.0 million and $135.0 million at December 31, 2020 and June 30, 2020, respectively. The amounts available under the respective borrowing facilities 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 $64.1 million and $76.3 million as determined on December 31, 2020 and June 30, 2020, respectively.

The Trading Credit Facility has certain restrictive financial covenants, including one requiring the Company to maintain a minimum tangible net worth. As of December 31, 2020 the minimum tangible net worth financial covenant under the Trading Credit Facility was $55.7 million. The Company is in compliance with all restrictive financial covenants as of December 31, 2020.

For the three months ended December 31, 2020 and 2019, interest expense related to the Company’s lines of credit totaled $1.6 million and $1.9 million, which represents 31.6% and 37.6%, respectively, of the total interest expense recognized. Our lines of credit carried a daily weighted average effective interest rate of 2.97% and 4.22%, respectively, for the three months ended December 31, 2020 and 2019.

For the six months ended December 31, 2020 and 2019, interest expense related to the Company’s lines of credit totaled $3.0 million and $4.1 million, which represents 31.7% and 39.6%, respectively of the total interest expense recognized. Our lines of credit carried a daily weighted average effective interest rate of 2.96% and 4.49%, respectively, for the six months ended December 31, 2020 and 2019.

Notes Payable

In September 2018, AM Capital Funding, LLC. (“AMCF”), a wholly owned subsidiary of CFC, completed an issuance of Secured Senior Term Notes (collectively, the "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” and together with the Class A Notes, the “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 Notes have a maturity date of December 15, 2023. The 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 Exchange Act.  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 of the Notes to purchase 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 December 31, 2020, the consolidated carrying balance of the Notes was $92.9 million (which excludes the $5.0 million note that the Company retained), and the remaining unamortized loan cost balance was approximately $2.1 million, which is amortized using the effective interest method through the maturity date.  As of December 31, 2020, the balance of the interest payable was $0.2 million.  Interest on the Notes is payable monthly in arrears at the aggregate rate of 5.26% per annum.

For the three months ended December 31, 2020 and 2019, the interest expense related to the Notes (including loan amortization costs) totaled $1.4 million and $1.3 million, which represents 28.2% and 26.2% of the total interest expense recognized by the Company.  For the three months ended December 31, 2020 and 2019, the Notes' weighted average effective interest rate was 5.88% and 5.88%, respectively.

For the six months ended December 31, 2020 and 2019, the interest expense related to the Notes (including loan amortization costs) totaled $2.8 million and $2.8 million, which represents 30.4% and 27.4% of the total interest expense recognized by the Company, respectively.  For the six months ended December 31, 2020 and 2019, the Notes' weighted average effective interest rate was 5.88% and 5.88%, respectively.

Liabilities on Borrowed Metals

The Company recorded liabilities on borrowed precious metals with market values totaling $141.8 million as of December 31, 2020, with corresponding metals totaling $120.3 million and $21.5 million included in precious metals held under financing

34


arrangements and inventories, respectively, on the condensed consolidated December 31, 2020 balance sheet.  The Company recorded liabilities on borrowed metals with market values totaling $168.2 million as of June 30, 2020 with corresponding metals totaling $148.9 million and $19.3 million included in precious metals held under financing arrangements and inventories, respectively, on the condensed consolidated June 30, 2020 balance sheet.

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 represent an unsegregated inventory position that is due on demand, is 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 obligation totaled $272.5 million and $74.7 million as of December 31, 2020 and June 30, 2020, respectively.

15.

COMMITMENTS AND CONTINGENCIES

Refer to Note 2 for information relating to minimum rental payments under operating and finance leases.  Refer to Note 15 of the Notes to Consolidated Financial Statements in the 2020 Annual Report for information relating to consulting and employment contracts, and other commitments.  The Company is not aware of any material changes to commitments as summarized in the 2020 Annual Report.

COVID-19

The Company is exposed to the effects of the COVID-19 pandemic.  The extent to which this outbreak impacts our results of operations, cash flows and financial condition will depend on future developments, which are highly uncertain and unpredictable, including new information which may emerge concerning the severity and duration of this outbreak and the actions taken by governmental authorities and us to contain it or treat its impact.

16.

STOCKHOLDERS’ EQUITY

Share Repurchase Program

In April 2018, the Company's Board of Directors approved a share repurchase program which authorized the Company to purchase up to 500,000 shares of its common stock from time to time, either in the open market or in block purchase transactions. The amount and timing of specific repurchases are subject to market conditions, applicable legal requirements and other factors.  As of December 31, 2020, no shares had been repurchased under the program.

Dividends

On September 3, 2020, the Company's Board of Directors declared a non-recurring special dividend of $1.50 per share to common stock shareholders of record at the close of business on September 21, 2020.  On October 29, 2020, the Company's Board of Directors declared a non-recurring special dividend of $1.50 per share to common stock shareholders of record at the close of business on November 23, 2020.  In the aggregate, the Company paid $21.2 million in dividends for the six months ended December 31, 2020.

35


2014 Stock Award and Incentive Plan

The Company's amended and restated 2014 Stock Award and Incentive Plan (the "2014 Plan") was approved by the Company's stockholders on November 2, 2017.  As of December 31, 2020, 188,664 shares were authorized for issuance under the 2014 Plan, which terminates in 2027.

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

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 to 250,000 shares in any fiscal 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 December 13, 2022.

Stock Options

During the three months ended December 31, 2020 and 2019, the Company incurred $209,839 and $237,665 of compensation expense related to stock options, respectively. During the six months ended December 31, 2020 and 2019, the Company incurred $388,268 and $403,969 of compensation expense related to stock options, respectively.  As of December 31, 2020, there remained a total of $1,559,329 in compensation expense related to employee stock options, to be recorded over the remaining vesting period of such options. The weighted average period remaining vesting period of the outstanding options is approximately 2.6 years.

Two obligatory events were triggered as a result of the non-recurring special dividends declared on September 3, 2020 and October 29, 2020. 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 dividend. Both these events decreased the exercise price of each stock option by $1.50 per dividend. This was effective on the date of record which was September 21, 2020 and November 23, 2020.  The fair value of the options before and after these events were unchanged and therefore no incremental stock-based compensation was recorded

The following table summarizes the stock option activity for the six months ended December 31, 2020.

 

 

 

Options

 

 

Weighted

Average

Exercise

Price Per

Share

 

 

Aggregate

Intrinsic Value

(in thousands)

 

 

Weighted

Average

Grant Date

Fair Value

Per Award

 

Outstanding at June 30, 2020

 

 

1,249,813

 

 

$

12.27

 

 

$

6,061

 

 

$

5.34

 

Granted

 

 

55,000

 

 

$

24.62

 

 

 

 

 

 

 

 

 

Exercises

 

 

(107,839

)

 

$

14.42

 

 

 

 

 

 

 

 

 

Cancellations, expirations and forfeitures

 

 

(1,600

)

 

$

20.16

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2020

 

 

1,195,374

 

 

$

12.63

 

 

$

15,621

 

 

$

5.52

 

Exercisable at December 31, 2020

 

 

758,255

 

 

$

17.16

 

 

$

8,713

 

 

$

5.92

 

 

36


Following is a summary of the status of stock options outstanding at December 31, 2020 and reflects the adjusted stock option prices:

 

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

 

$

 

 

$

10.00

 

 

 

526,886

 

 

 

6.09

 

 

$

6.81

 

 

 

223,322

 

 

 

2.22

 

 

$

6.42

 

$

10.01

 

 

$

15.00

 

 

 

209,321

 

 

 

6.95

 

 

$

11.46

 

 

 

130,766

 

 

 

6.34

 

 

$

11.76

 

$

15.01

 

 

$

25.00

 

 

 

444,167

 

 

 

5.69

 

 

$

19.52

 

 

 

404,167

 

 

 

5.29

 

 

$

19.21

 

$

25.01

 

 

$

60.00

 

 

 

15,000

 

 

 

9.82

 

 

$

29.83

 

 

 

 

 

 

 

 

$

 

 

 

 

 

 

 

 

 

 

1,195,374

 

 

 

6.14

 

 

$

12.63

 

 

 

758,255

 

 

 

4.57

 

 

$

14.16

 

 

The following table summarizes the nonvested stock option activity for the six months ended December 31, 2020.

 

 

 

Options

 

 

 

Weighted

Average

Grant Date

Fair Value

Per Award

 

Nonvested Outstanding at June 30, 2020

 

 

423,002

 

 

 

$

4.14

 

Granted

 

 

55,000

 

 

 

$

9.99

 

Vested

 

 

(40,883

)

 

 

$

4.74

 

Nonvested Outstanding at December 31, 2020

 

 

437,119

 

 

 

$

4.82

 

 

Valuation and Other Significant Assumptions of Equity Awards Issued

The Company used the Black-Scholes pricing model, which used various inputs such as the estimated common share price, the risk-free interest rate, volatility, expected life and dividend yield, all of which are estimates, to determine the estimated grant-date fair value of its stock options issued.

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. 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.

17.

CUSTOMER AND SUPPLIER CONCENTRATIONS

Customer Concentration

Customers providing 10 percent or more of the Company's revenues for the three or six months ended December 31, 2020 are presented on a comparative basis, with their corresponding balances for the three and six months ended December 31, 2020 and 2019 in the table below:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

December 31, 2020

 

 

December 31, 2019

 

 

December 31, 2020

 

 

December 31, 2019

 

 

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

Total revenue

 

$

1,518,744

 

 

 

100.0

%

 

$

1,055,590

 

 

 

100.0

%

 

$

3,384,860

 

 

 

100.0

%

 

$

2,536,604

 

 

 

100.0

%

Customer concentrations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HSBC Bank USA(1)

 

$

175,306

 

 

 

11.6

%

 

$

126,581

 

 

 

12.0

%

 

$

339,695

 

 

 

10.0

%

 

$

398,780

 

 

 

15.7

%

Customer A

 

 

220,509

 

 

 

14.5

%

 

 

86,407

 

 

 

8.2

%

 

 

604,937

 

 

 

17.9

%

 

 

157,735

 

 

 

6.2

%

 

 

$

395,815

 

 

 

26.1

%

 

$

212,988

 

 

 

20.2

%

 

$

944,632

 

 

 

27.9

%

 

$

556,515

 

 

 

21.9

%

 

(1)

Sales with this trading partner includes sales on forward contracts that are entered into for hedging purposes rather than sales characterized with the physical delivery of precious metal product.

37


No single customer provided 10 percent or more of the Company's accounts receivable or secured loan receivable balances as of December 31, 2020 and June 30, 2020.

 

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

 

18.SEGMENTS AND GEOGRAPHIC INFORMATION

The Company evaluates segment reporting in accordance with FASB ASC 280, Segment Reporting, 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 — Wholesale Sales & Ancillary Services, Secured Lending, and Direct Sales. (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

 

 

 

Six Months Ended

 

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

 

Revenue by segment(1)(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services⁽³⁾

 

$

1,477,489

 

 

 

$

1,038,154

 

 

 

$

3,291,197

 

 

 

$

2,499,087

 

 

Direct Sales

 

 

41,255

 

(a)

 

 

17,436

 

(b)

 

 

93,663

 

(c)

 

 

37,517

 

(d)

 

 

$

1,518,744

 

 

 

$

1,055,590

 

 

 

$

3,384,860

 

 

 

$

2,536,604

 

 

 

(1)

Inter-segment purchases from and sales to the Direct Sales segment are transacted at Wholesale Sales & Ancillary Services segment's prices, which is consistent with arms-length transactions with third-parties.

(2)

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.

(3)

The elimination 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 Sales segment to the Wholesale Sales & Ancillary Services segment.

(b)

Includes $4.8 million of inter-segment sales from the Direct Sales segment to the Wholesale Sales & Ancillary Services segment.

(c)

Includes $6.9 million of inter-segment sales from the Direct Sales segment to the Wholesale Sales & Ancillary Services segment.

(d)

Includes $13.1 million of inter-segment sales from the Direct Sales segment to the Wholesale Sales & Ancillary Services segment.

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

Revenue by geographic region (as determined by the shipping or billing address or where the services were performed):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

1,157,407

 

 

 

$

781,043

 

 

 

$

2,616,417

 

 

 

$

1,886,664

 

Europe

 

 

127,015

 

 

 

 

93,308

 

 

 

 

246,923

 

 

 

 

155,410

 

North America, excluding United States

 

 

223,827

 

 

 

 

166,835

 

 

 

 

481,072

 

 

 

 

467,232

 

Asia Pacific

 

 

8,303

 

 

 

 

12,822

 

 

 

 

23,435

 

 

 

 

18,935

 

Africa

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31

 

Australia

 

 

2,192

 

 

 

 

1,582

 

 

 

 

17,013

 

 

 

 

8,332

 

 

 

$

1,518,744

 

 

 

$

1,055,590

 

 

 

$

3,384,860

 

 

 

$

2,536,604

 

38


 

Gross Profit and Gross Margin Percentage

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

Gross profit by segment(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

$

13,245

 

 

 

$

6,597

 

 

 

$

43,867

 

 

 

$

13,357

 

Direct Sales

 

 

5,506

 

 

 

 

1,534

 

 

 

 

11,029

 

 

 

 

3,114

 

Total gross profit

 

$

18,751

 

 

 

$

8,131

 

 

 

$

54,896

 

 

 

$

16,471

 

Gross margin percentage by segment(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

 

0.896

%

 

 

 

0.635

%

 

 

 

1.333

%

 

 

 

0.534

%

Direct Sales

 

 

13.346

%

 

 

 

8.798

%

 

 

 

11.775

%

 

 

 

8.300

%

Weighted average gross margin percentage

 

 

1.235

%

 

 

 

0.770

%

 

 

 

1.622

%

 

 

 

0.649

%

 

(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.

Operating income and (expenses)

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

Operating income (expense) by segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

$

(6,685

)

 

 

$

(5,477

)

 

 

$

(14,292

)

 

 

$

(11,279

)

Interest income

 

$

2,498

 

 

 

$

2,230

 

 

 

$

4,936

 

 

 

$

4,492

 

Interest expense

 

$

(2,915

)

 

 

$

(2,444

)

 

 

$

(5,863

)

 

 

$

(5,270

)

Other income, net

 

$

2,362

 

 

 

$

102

 

 

 

$

6,488

 

 

 

$

114

 

Unrealized losses on foreign exchange

 

$

19

 

 

 

$

125

 

 

 

$

(78

)

 

 

$

3

 

Secured Lending

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

$

(507

)

 

 

$

(384

)

 

 

$

(1,003

)

 

 

$

(732

)

Interest income

 

$

2,035

 

 

 

$

4,002

 

 

 

$

3,580

 

 

 

$

7,508

 

Interest expense

 

$

(2,122

)

 

 

$

(2,637

)

 

 

$

(3,467

)

 

 

$

(4,953

)

Other income, net

 

$

205

 

 

 

$

47

 

 

 

$

564

 

 

 

$

89

 

Direct Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

$

(1,841

)

 

 

$

(2,009

)

 

 

$

(3,744

)

 

 

$

(4,129

)

Other expense, net

 

$

 

 

 

$

1

 

 

 

$

 

 

 

$

(219

)

 

Net income (loss) before provision for income taxes

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

Net income (loss) before provision for income taxes by segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

$

8,524

 

 

 

$

1,133

 

 

 

$

35,058

 

 

 

$

1,417

 

Secured Lending

 

 

(389

)

 

 

 

1,028

 

 

 

 

(326

)

 

 

 

1,912

 

Direct Sales

 

 

3,665

 

 

 

 

(474

)

 

 

 

7,285

 

 

 

 

(1,234

)

 

 

$

11,800

 

 

 

$

1,687

 

 

 

$

42,017

 

 

 

$

2,095

 

 

39


Depreciation and Amortization

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

Depreciation and amortization by segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

$

(219

)

 

 

$

(403

)

 

 

$

(424

)

 

 

$

(800

)

Secured Lending

 

 

(88

)

 

 

 

(19

)

 

 

 

(176

)

 

 

 

(35

)

Direct Sales

 

 

(198

)

 

 

 

(244

)

 

 

 

(406

)

 

 

 

(499

)

 

 

$

(505

)

 

 

$

(666

)

 

 

$

(1,006

)

 

 

$

(1,334

)

 

Advertising expense

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

Advertising expense by segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

$

(78

)

 

 

$

(12

)

 

 

$

(143

)

 

 

$

(68

)

Secured Lending

 

 

(43

)

 

 

 

(2

)

 

 

 

(68

)

 

 

 

(5

)

Direct Sales

 

 

(501

)

 

 

 

(332

)

 

 

 

(1,111

)

 

 

 

(736

)

 

 

$

(622

)

 

 

$

(346

)

 

 

$

(1,322

)

 

 

$

(809

)

 

Precious metals held under financing arrangements

 

in thousands

 

 

 

 

 

 

 

 

 

 

December 31,

2020

 

 

June 30,

2020

 

Precious metals held under financing arrangements by segment

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

$

132,366

 

 

$

157,609

 

Secured Lending

 

 

27,889

 

 

 

20,968

 

 

 

$

160,255

 

 

$

178,577

 

 

Inventories

 

in thousands

 

 

 

 

 

 

 

 

 

 

December 31,

2020

 

 

June 30,

2020

 

Inventories by segment

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

$

500,281

 

 

$

289,069

 

Secured Lending

 

 

7,907

 

 

 

24,057

 

Direct Sales

 

 

9,494

 

 

 

8,155

 

 

 

$

517,682

 

 

$

321,281

 

 

in thousands

 

 

 

 

 

 

 

 

 

 

December 31,

2020

 

 

June 30,

2020

 

Inventories by geographic region

 

 

 

 

 

 

 

 

United States

 

$

485,064

 

 

$

287,960

 

Europe

 

 

10,543

 

 

 

19,531

 

North America, excluding United States

 

 

20,486

 

 

 

13,735

 

Asia

 

 

1,589

 

 

 

55

 

 

 

$

517,682

 

 

$

321,281

 

 

40


Total Assets

 

in thousands

 

 

 

 

 

 

 

 

 

 

December 31,

2020

 

 

June 30,

2020

 

Assets by segment

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

$

851,460

 

 

$

599,032

 

Secured Lending

 

 

137,859

 

 

 

140,622

 

Direct Sales

 

 

17,807

 

 

 

18,381

 

 

 

$

1,007,126

 

 

$

758,035

 

 

in thousands

 

 

 

 

 

 

 

 

 

 

December 31,

2020

 

 

June 30,

2020

 

Assets by geographic region

 

 

 

 

 

 

 

 

United States

 

$

973,281

 

 

$

723,252

 

Europe

 

 

11,770

 

 

 

20,993

 

North America, excluding United States

 

 

20,486

 

 

 

13,735

 

Asia

 

 

1,589

 

 

 

55

 

 

 

$

1,007,126

 

 

$

758,035

 

 

Long-term Assets

 

in thousands

 

 

 

 

 

 

 

 

 

 

December 31,

2020

 

 

June 30,

2020

 

Long-term assets by segment

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

$

51,583

 

 

$

39,090

 

Secured Lending

 

 

1,148

 

 

 

1,319

 

Direct Sales

 

 

2,875

 

 

 

3,607

 

 

 

$

55,606

 

 

$

44,016

 

 

in thousands

 

 

 

 

 

 

 

 

 

 

December 31,

2020

 

 

June 30,

2020

 

Long-term assets by geographic region

 

 

 

 

 

 

 

 

United States

 

$

55,551

 

 

$

43,963

 

Europe

 

 

55

 

 

 

53

 

 

 

$

55,606

 

 

$

44,016

 

 

Capital Expenditures for Property, Plant, and Equipment

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

Capital expenditures on property, plant, and equipment by segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

$

451

 

 

 

$

279

 

 

 

$

924

 

 

 

$

376

 

Secured Lending

 

 

4

 

 

 

 

35

 

 

 

 

4

 

 

 

 

72

 

Direct Sales

 

 

6

 

 

 

 

4

 

 

 

 

9

 

 

 

 

7

 

 

 

$

461

 

 

 

$

318

 

 

 

$

937

 

 

 

$

455

 

 

41


Goodwill and Intangible Assets

 

in thousands

 

 

 

 

 

 

 

 

 

 

December 31,

2020

 

 

June 30,

2020

 

Goodwill by segment

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

$

8,881

 

 

$

8,881

 

Direct Sales (1)

 

 

 

 

 

 

 

 

$

8,881

 

 

$

8,881

 

 

(1)

Direct Sales segment’s goodwill balance is net of $1.4 million accumulated impairment losses.

 

 

Intangible Assets

 

in thousands

 

 

 

 

 

 

 

 

 

 

December 31,

2020

 

 

June 30,

2020

 

Intangibles by segment

 

 

 

 

 

 

 

 

Wholesale Sales & Ancillary Services

 

$

2,869

 

 

$

2,907

 

Direct Sales

 

 

1,788

 

 

 

2,067

 

 

 

$

4,657

 

 

$

4,974

 

 

19.

SUBSEQUENT EVENTS

Pending Acquisition

On February 8, 2021, the Company entered into a stock purchase agreement with the stockholders of JM Bullion, Inc., a Delaware corporation (“JMB”), for the acquisition of the 79.47% interest in JMB that is not currently owned by the Company.  JMB is an e-commerce retailer of gold, silver, copper, platinum and palladium products. The purchase price is approximately $138.3 million, consisting of $103.7 million in cash and $34.6 million in common stock of the Company, valued at $28.96 per share, in each case subject to adjustment.  The share valuation represents the volume weighted average of the trading prices of the Company’s common stock for the 30 consecutive trading days preceding the date of the purchase agreement. The cash portion of the purchase price will be reduced by an amount equal to 20.53% (which is the Company’s percentage ownership interest in JMB) of the amount of a cash redemption to be made by JMB to its stockholders, other than the Company, prior to the acquisition.  In addition, the stock portion of the purchase price will be reduced such that no single stockholder of JMB will own more than 4.8% of the Company’s common stock immediately following the acquisition. If the stock consideration of a selling JMB stockholder is reduced, the cash consideration payable to that JMB stockholder will be increased by an amount equal to 65% of the value of the decrease in stock consideration.  The Company intends to finance the cash portion of the purchase price with cash on hand and through any available means of financing, including a public or private equity or convertible debt offering. The acquisition is subject to various closing conditions. The Company anticipates closing the acquisition in the third quarter of the current fiscal year. 

42


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Quarterly Report on Form 10-Q ("Form 10-Q") contains statements that are considered forward-looking statements. Forward-looking statements give the Company's current expectations and forecasts of future events. All statements other than statements of current or historical fact contained in this Quarterly Report, including statements regarding the Company's future financial position, business strategy, budgets, projected costs and plans, and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “plan,” and similar expressions, as they relate to the Company, are intended to identify forward-looking statements. These statements are based on the Company's current plans, and the Company's actual future activities and results of operations may be materially different from those set forth in the forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made. Any or all of the forward-looking statements in this Quarterly Report may turn out to be inaccurate. The Company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy, and financial needs. The forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and assumptions. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events occurring after the date hereof. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements contained in this Form 10-Q.

In addition to the risks and uncertainties that may ordinarily influence our business, the Company is exposed to the effects of the COVID-19 pandemic.  The extent to which this outbreak ultimately impacts our results of operations, cash flows and financial condition will depend on future developments, which are highly uncertain and unpredictable, including new information which may emerge concerning the severity and duration of this outbreak and the actions taken by governmental authorities and us to contain it or treat its impact.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and notes contained elsewhere in this Form 10-Q.This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this Quarterly Report, particularly in “Risk Factors.”

INTRODUCTION

Management's discussion and analysis of financial condition and results of operations is provided as a supplement to the accompanying condensed consolidated financial statements and related notes to aid in the understanding of our results of operations and financial condition. Our discussion is organized as follows:

 

Executive overview. This section provides a general description of our business, as well as significant transactions and events that we believe are important in understanding the results of operations.

 

Results of operations.  This section provides an analysis of our results of operations presented in the accompanying condensed consolidated statements of income by comparing the results for the respective periods presented. Included in our analysis is a discussion of five performance metrics: (i) Ounces of gold and silver sold, (ii) Wholesale Sales ticket volume, (iii) Direct Sales ticket volume, (iv) inventory turnover ratio and (v) number of secured loans at period-end.

 

Segment results of operations. This section provides an analysis of our results of operations presented for our three segments:

for the comparable periods.

 

Liquidity and financial condition. This section provides an analysis of our cash flows, as well as a discussion of our outstanding debt as of December 31, 2020. Included in this section is a discussion of our: outstanding debt, the amount of financial capacity available to fund our future commitments and other financing arrangements.

43


 

Critical accounting policies. This section discusses critical accounting policies that are considered both important to our financial condition and results of operations, and require management to make significant judgment and estimates. All of our significant accounting policies, including the critical accounting policies are also summarized in Note 2 of the notes to the condensed consolidated financial statements.

 

Recent accounting pronouncements. This section discusses new accounting pronouncements, dates of implementation and their expected impact on our accompanying condensed consolidated financial statements.

EXECUTIVE OVERVIEW

Our Business

We conduct our operations in three reportable segments: (i) Wholesale Sales & Ancillary Services (formerly known as Wholesale Trading & Ancillary Service segment) (ii) Secured Lending and (iii) Direct Sales. The Wholesale Sales & Ancillary Services segment name change was to the name only and had no impact on the Company's historical financial position, results of operations, cash flow or segment level results previously reported

Wholesale Sales & Ancillary Services Segment

The Company operates its Wholesale Sales & Ancillary Services segment through A-Mark Precious Metals, Inc., and its wholly-owned subsidiaries, A-Mark Trading AG (“AMTAG”), Transcontinental Depository Services ("TDS" or “Storage”), and A-M Global Logistics, LLC (“AMGL” or "Logistics"), and its partially-owned subsidiary, AM&ST Associates, LLC. ("AMST" or "SilverTowne" or the "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 200 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 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 throughout the European continent. 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. Our storage business generated less than 1% of total revenues for each of the periods presented.

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.  Our logistics business generated less than 1% of the total revenues for each of the periods presented.

Through our partially-owned subsidiary, AMST, the Company designs and produces minted silver products. The Company operates the Mint pursuant to a joint venture agreement with SilverTowne, L.P.  The Company and SilverTowne L.P. own 69% and 31%, respectively, of AMST.  AMST acquired the entire minting operations (referred to as SilverTowne Mint) of SilverTowne, L.P., with the goal of providing greater product selection to our customers and greater pricing stability within the supply chain, as well as to gain increased access to silver during volatile market environments, which have historically created higher demand for precious metals products.

Secured Lending

The Company operates its Secured Lending segment through its wholly-owned subsidiaries, Collateral Finance Corporation LLC. ("CFC") and AM Capital Funding, LLC. (“AMCF”).

CFC is a California licensed finance lender that originates and acquires commercial loans secured by bullion and numismatic coins. CFC's customers include coin and precious metal dealers, investors, and collectors. As of December 31, 2020, CFC and AMCF had, in aggregate, approximately $95.8 million in secured loans outstanding, of which approximately 60.3% were acquired from third-parties (some of which may be customers of A-Mark) and approximately 39.7% were originated by CFC.

44


AMCF, a wholly-owned subsidiary of CFC, was formed for the purpose of securitizing eligible secured loans of CFC.  AMCF issued, administers, and owns Secured Senior Term Notes: Series 2018-1, Class A, with an 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.  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% (collectively referred to as the "Notes").  The Notes have a maturity date of December 15, 2023. For additional information see Note 14 of the notes to condensed consolidated financial statements.

Direct Sales

The Company operates its Direct Sales segment through its wholly-owned subsidiaries Goldline Inc. (“Goldline”) and AM IP LLC. ("AMIP"), and through its 50%-owned subsidiary Precious Metals Purchasing Partners, LLC, ("PMPP").

The Company acquired Goldline in August 2017 through an asset purchase transaction with Goldline LLC. Goldline LLC. had been in operation since 1960. Goldline is a direct retailer of precious metals to the investor community. Goldline markets its precious metal products on television, radio, and the internet, as well as through telephonic sales efforts. Goldline's business has enhanced the Company’s distribution capabilities by adding a direct-to-client distribution channel that has diversified the product and services offered to Goldline's customers, through access to the Company’s wider assortment of precious metal coins and bars, including TDS’s storage and asset protection services.

AMIP, a wholly owned subsidiary of Goldline, manages its intellectual property.

In fiscal 2019, the Company formed and capitalized PMPP, a 50%-owned subsidiary of Goldline, 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.

Our Strategy

The Company was formed in 1965 and has grown into a significant participant in the bullion and coin markets, with approximately $5.5 billion in revenues for fiscal year 2020. Our strategy continues to focus on growth, including the volume of our business, our geographic presence, and the scope of complementary products, services, and technological tools that we offer to our customers.  We intend to promote our growth by leveraging off the strengths of our existing integrated operations:

 

the depth of our customer relationships;

 

our access to market makers, suppliers, and sovereign and private mints;

 

our trading systems in the U.S. and Europe;

 

our expansive precious metals dealer network;

 

our depository relationships around the world;

 

our knowledge of secured lending;

 

our logistics capabilities;

 

our trading expertise; and

 

the quality and experience of our management team.

 

Our Customers

Our customers include financial institutions, bullion retailers, industrial manufacturers and fabricators, sovereign mints, refiners, coin and metal dealers, investors, and collectors. The Company makes a two way market, which results in many customers also operating as our suppliers.  This diverse base of customers purchases a variety of products from the Company in a multitude of grades, primarily in the form of coins and bars.

Factors Affecting Revenues, Gross Profit, Interest Income, and Interest Expense

Revenues.  The Company enters into transactions to sell and deliver gold, silver, platinum, and palladium to industrial and commercial users, coin and bullion dealers, mints, and financial institutions. The metals are investment or industrial grade and are sold in a variety of shapes and sizes.

45


The Company also sells precious metals on forward contracts at a fixed price based on current prevailing precious metal spot prices with a certain delivery date in the future (up to six months from inception date of the forward contract).  The Company also uses other derivative products (primarily futures contracts) or combinations thereof to hedge commodity risks. We enter into these forward and future contracts as part of our hedging strategy to mitigate our price risk of holding inventory; they are not entered into for speculative purposes.

However, unlike futures contracts which do not impact the Company’s revenue, forward sales contracts by their nature are required to be included in revenues. The decision to use a forward contract verses another derivative type product (e.g., a futures contract) for hedging purposes is based on the economics of the transaction.  Since the volume of hedging can be significant, the movement in and out of forwards can substantially impact revenues, either positively or negatively, from period to period.  For this reason, the Company believes ounces sold (excluding ounces sold on forward sales contracts) is a meaningful metric to assess our top line performance.

In addition, the Company earns revenue by providing storage solutions for precious metals and numismatic coins for financial institutions, dealers, investors and collectors worldwide and by providing storage and order-fulfillment services to our retail customers.  These revenue streams are complementary to our trading activity, and represent less than 1% of our revenues.

The Company operates in a high volume/low margin industry.  Revenues are impacted by three primary factors: product volume, market prices and market volatility. A material change in any one or more of these factors may result in a significant change in the Company’s revenues.  A significant increase or decrease in revenues can occur simply based on changes in the underlying commodity prices and may not be reflective of an increase or decrease in the volume of products sold.

Gross Profit.  Gross profit is the difference between our revenues and the cost of our products sold.  Since we quote prices based on the current commodity market prices for precious metals, we enter into a combination of forward and futures contracts to effect a hedge position equal to the underlying precious metal commodity value, which substantially represents inventory subject to price risk.  We enter into these derivative transactions solely for the purpose of hedging our inventory, and not for speculative purposes.  Our gross profit includes the gains and losses resulting from these derivative instruments.  However, the gains and losses on the derivative instruments are substantially offset by the gains and losses on the corresponding changes in the market value of our precious metals inventory.  As a result, our results of operations generally are not materially impacted by changes in commodity prices.

Volatility also affects our gross profit.  Greater volatility typically causes the premium spreads to widen resulting in an increase in the gross profit. Product supply constraints during extended periods of higher volatility have historically resulted in a heightening of wider premium spreads resulting in further improvement in the gross profit.

Interest Income.  The Company enters into secured loans and secured financing structures with its customers under which it charges interest. CFC acquires loan portfolios and originates loans that are secured by precious metal bullion and numismatic material owned by the borrowers and held by the Company for the term of the loan.  Additionally, AMCF acquires certain loans from CFC that are secured by precious metal bullion to meet the collateral requirements of the Notes.  Also, the Company offers a number of secured financing options to its customers to finance their precious metals purchases including consignments and other structured inventory finance products whereby the Company earns a fee based on the underlying value of the precious metal ("repurchase arrangements with customers").

Interest Expense.  The Company incurs interest expense associated with its: lines of credit, notes, related-party debt,  product financing agreements for the transfer and subsequent re-acquisition of gold and silver at a fixed price with a third-party finance company ("product financing arrangements"), and short-term precious metal borrowing arrangements with our suppliers ("liabilities on borrowed metals").

Performance Metrics

In addition to financial statement indicators, management also utilizes certain key operational metrics to assess the performance of our business.

Gold and Silver Ounces Sold and Delivered to Customers.  We look at the number of ounces of gold and silver sold and delivered to our customers (excluding ounces recorded on forward contracts).  These metrics reflect our business volume without regard to changes in commodity pricing, which also impacts revenue, but can mask actual business trends.

The primary purpose of entering into forward sales transactions is to hedge commodity price risk. Although the revenues realized from these forward sales transactions are often significant, they generally have negligible impact to gross margins.  As a result, the Company excludes the ounces recorded on forward contracts from its performance metrics, as the Company does not enter into forward sales transactions for speculative purposes.

46


Wholesale Sales Ticket Volume and Direct Sales Ticket Volume.  Another measure of our business that is unaffected by changes in commodity pricing, is ticket volume. Ticket volume for the Wholesale Sales & Ancillary Services and Direct Sales segments measures the total number of orders processed by our trading desks.  In periods of higher volatility, there is generally increased trading in the commodity markets, causing increased demand for our products, resulting in higher business volume. Generally, the ounces sold on a per-trading-ticket basis is substantially higher for orders placed telephonically compared to those placed on our online portal platform.

Inventory Turnover.  Inventory turnover is another performance measure on which we are focused, and is calculated as the cost of sales divided by the average inventory during the relevant period.  Inventory turnover is a measure of how quickly inventory has moved during the period.  A higher inventory turnover ratio, which we typically experience during periods of higher volatility when trading is more robust, typically reflects a more efficient use of our capital.

The period of time that inventory is held by the Company varies depending upon the nature of our inventory commitments with customers and suppliers.  (See Note 6 of the notes to condensed consolidated financial statements for a description of our classifications of inventory by type.)  When management analyzes inventory turnover on a period over period basis, consideration is given to each inventory type and its corresponding impact on the inventory turnover calculation.  Management's analysis includes the following:

 

The Company enters into various structured borrowing arrangements that commit the Company's inventory (such as; product financing arrangements or liabilities on borrowed metals) for an unspecified period of time.  While the Company is able to obtain access to this inventory on demand, there is a tendency that this type of inventory does not turn over as quickly as other types of inventory.

 

The Company enters into repurchase arrangements with customers under which A-Mark holds precious metals which are subject to repurchase for an unspecified period of time. While the Company retains legal title to this inventory, the Company is required to hold this inventory (or like-kind inventory) for the customer until the arrangement is terminated or the material is repurchased by the customer.  As a result, there is a tendency that this type of inventory does not turn over as quickly as other types of inventory.

Additionally, our inventory turnover ratio can be affected by hedging activity, as the period over period change of the inventory turnover ratio may be significantly impacted by a period over period change in hedging volume.  For example, if trading activity were to remain constant over two periods, but there were significantly higher forward sales in the current period compared to a prior period, the calculated inventory turnover ratio would indicate an increase in the ratio rather than remaining constant.

Number of Secured Loans.  Finally, as a measure of the size of our Secured Lending segment, we look at the number of outstanding secured loans to customers that are primarily collateralized by precious metals at the end of each quarter. Typically, the number of loans increases during periods of increasing precious metal pricing and decreases during periods of declining precious metal prices.

The Company calculates its loan-to-value ("LTV") ratio as the principal amount of the loan divided by the liquidation value of the collateral, which is based on daily spot market prices of precious metal bullion. When the market price of the pledged collateral decreases and thereby increases the LTV ratio of a loan above a prescribed maximum ratio, usually 85%, the Company has the option to make a margin call on the loan.  As a result, a decline of precious metal market prices may cause a decrease in the number of loans outstanding in a period.

COVID-19

On March 11, 2020, the World Health Organization announced that infections of COVID-19 had become pandemic, and on March 13, COVID-19 was declared a national emergency on account of the spread of the disease in the United States.  The COVID-19 outbreak has caused significant disruption in the financial markets both globally and in the United States, and has severely constricted the level of economic activity worldwide.  The resulting macroeconomic events contributed to an increase in the business conducted by the Company, but also pose certain risks and uncertainties for the Company. It is challenging to predict how long the COVID-19 pandemic will continue, the extent to which the effects that the Company has experienced from the pandemic thus far will persist, or whether other effects on the Company and its businesses will materialize in the short or long term.

Macroeconomic events have positively affected the Company’s trading revenues and gross profit as the volatility of the price of precious metals and numismatics resulted in a material increase in the spread between bid and ask prices on these products. We also experienced substantially increased demand for products in each of our coin and bar, industrial and retail (Goldline) businesses, which we attribute to certain customers seeking to assure a supply of precious metals necessary for the operation of their businesses, and other customers’ seeking the safety of investments in precious metals.  In response to the heightened demand, in certain cases prices for the products we sell have also risen.

47


We have also experienced certain negative effects in the precious metals market.  Through our CFC finance subsidiary, we make loans to our customers secured by coins and precious metals.  Numerous CFC loans were paid off in March 2020 when the market experienced a temporary drop in precious metal prices, which reduced collateral coverage.  This had the effect of decreasing the size of our loan portfolio and the interest earned on the portfolio.  It also required us to substitute cash and our own precious metals inventory as collateral under our AMCF securitization program, as the pool of loans securing the program declined.  While we did not experience any related losses, there is no assurance that this might not occur in the future.  In the three successive quarters, as silver prices rebounded, the Company has experienced growth in its loan portfolio.

Fiscal Year

Our fiscal year end is June 30 each year.  Unless otherwise stated, references to years in this report relate to fiscal years rather than to calendar years.

 

RESULTS OF OPERATIONS

Overview of Results of Operations for the Three Months Ended December 31, 2020 and 2019

Condensed Consolidated Results of Operations

The operating results of our business for the three months ended December 31, 2020 and 2019 are as follows:

 

in thousands, except per share data and performance metrics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31,

 

2020

 

 

2019

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Revenues

 

$

1,518,744

 

 

 

100.000

%

 

$

1,055,590

 

 

 

100.000

%

 

$

463,154

 

 

 

43.9

%

Gross profit

 

 

18,751

 

 

 

1.235

%

 

 

8,131

 

 

 

0.770

%

 

$

10,620

 

 

 

130.6

%

Selling, general, and administrative expenses

 

 

(9,033

)

 

 

(0.595

)%

 

 

(7,870

)

 

 

(0.746

)%

 

$

1,163

 

 

 

14.8

%

Interest income

 

 

4,533

 

 

 

0.298

%

 

 

6,232

 

 

 

0.590

%

 

$

(1,699

)

 

 

(27.3

%)

Interest expense

 

 

(5,037

)

 

 

(0.332

)%

 

 

(5,081

)

 

 

(0.481

)%

 

$

(44

)

 

 

(0.9

%)

Other income, net

 

 

2,567

 

 

 

0.169

%

 

 

150

 

 

 

0.014

%

 

$

2,417

 

 

 

1,611.3

%

Unrealized gains on foreign exchange

 

 

19

 

 

 

0.001

%

 

 

125

 

 

 

0.012

%

 

$

(106

)

 

 

(84.8

%)

Net income before provision for income taxes

 

 

11,800

 

 

 

0.777

%

 

 

1,687

 

 

 

0.160

%

 

$

10,113

 

 

 

599.5

%

Income tax expense

 

 

(2,586

)

 

 

(0.170

)%

 

 

(432

)

 

 

(0.041

)%

 

$

2,154

 

 

 

498.6

%

Net income

 

 

9,214

 

 

 

0.607

%

 

 

1,255

 

 

 

0.119

%

 

$

7,959

 

 

 

634.2

%

Net income attributable to non-controlling interests

 

 

289

 

 

 

0.019

%

 

 

21

 

 

 

0.002

%

 

$

268

 

 

 

1,276.2

%

Net income attributable to the Company

 

$

8,925

 

 

 

0.588

%

 

$

1,234

 

 

 

0.117

%

 

$

7,691

 

 

 

623.3

%

Basic and diluted net income per share  attributable to

   A-Mark Precious Metals, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Share Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.26

 

 

 

 

 

 

$

0.17

 

 

 

 

 

 

$

1.09

 

 

 

641.2

%

Diluted

 

$

1.16

 

 

 

 

 

 

$

0.17

 

 

 

 

 

 

$

0.99

 

 

 

582.4

%

Performance Metrics:(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gold ounces sold(2)

 

 

479,000

 

 

 

 

 

 

 

428,000

 

 

 

 

 

 

 

51,000

 

 

 

11.9

%

Silver ounces sold(3)

 

 

21,245,000

 

 

 

 

 

 

 

14,102,000

 

 

 

 

 

 

 

7,143,000

 

 

 

50.7

%

Inventory turnover ratio(4)

 

 

3.2

 

 

 

 

 

 

 

3.3

 

 

 

 

 

 

 

(0.1

)

 

 

(3.0

%)

Number of secured loans at period end(5)

 

 

1,324

 

 

 

 

 

 

 

3,725

 

 

 

 

 

 

 

(2,401

)

 

 

(64.5

%)

 

(1)

See "Results of Segments" for ticket count volume by segment.

(2)

Gold ounces sold represents the ounces of gold product sold and delivered to the customer during the period, excluding ounces of gold recorded on forward contracts.

(3)

Silver ounces sold represents the ounces of silver product sold and delivered to the customer during the period, excluding ounces of silver recorded on forward contracts.

(4)

Inventory turnover ratio is the cost of sales divided by average inventory for the period presented above. This calculation excludes precious metals held under financing arrangements, which are not classified as inventory on the consolidated balance sheets.

(5)

Number of outstanding secured loans to customers at the end of the period.

48


Overview of Results of Operations for the Six Months Ended December 31, 2020 and 2019

Condensed Consolidated Results of Operations

The operating results of our business for the six months ended December 31, 2020 and 2019 are as follows:

 

in thousands, except per share data and performance metrics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended December 31,

 

2020

 

 

2019

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Revenues

 

$

3,384,860

 

 

 

100.000

%

 

$

2,536,604

 

 

 

100.000

%

 

$

848,256

 

 

 

33.4

%

Gross profit

 

 

54,896

 

 

 

1.622

%

 

 

16,471

 

 

 

0.649

%

 

$

38,425

 

 

 

233.3

%

Selling, general, and administrative expenses

 

 

(19,039

)

 

 

(0.562

)%

 

 

(16,140

)

 

 

(0.636

)%

 

$

2,899

 

 

 

18.0

%

Interest income

 

 

8,516

 

 

 

0.252

%

 

 

12,000

 

 

 

0.473

%

 

$

(3,484

)

 

 

(29.0

%)

Interest expense

 

 

(9,330

)

 

 

(0.276

)%

 

 

(10,223

)

 

 

(0.403

)%

 

$

(893

)

 

 

(8.7

%)

Other income (expense), net

 

 

7,052

 

 

 

0.208

%

 

 

(16

)

 

 

(0.001

)%

 

$

7,068

 

 

 

44,175.0

%

Unrealized (losses) gains on foreign exchange

 

 

(78

)

 

 

(0.002

)%

 

 

3

 

 

 

0.000

%

 

$

81

 

 

 

2,700.0

%

Net income before provision for income taxes

 

 

42,017

 

 

 

1.241

%

 

 

2,095

 

 

 

0.083

%

 

$

39,922

 

 

 

1,905.6

%

Income tax expense

 

 

(9,097

)

 

 

(0.269

)%

 

 

(537

)

 

 

(0.021

)%

 

$

8,560

 

 

 

1,594.0

%

Net income

 

 

32,920

 

 

 

0.973

%

 

 

1,558

 

 

 

0.061

%

 

$

31,362

 

 

 

2,013.0

%

Net income attributable to non-controlling interests

 

 

912

 

 

 

0.027

%

 

 

196

 

 

 

0.008

%

 

$

716

 

 

 

365.3

%

Net income attributable to the Company

 

$

32,008

 

 

 

0.946

%

 

$

1,362

 

 

 

0.054

%

 

$

30,646

 

 

 

2,250.1

%

Basic and diluted net income per share  attributable to

   A-Mark Precious  Metals, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Share Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

4.53

 

 

 

 

 

 

$

0.19

 

 

 

 

 

 

$

4.34

 

 

 

2,284.2

%

Diluted

 

$

4.21

 

 

 

 

 

 

$

0.19

 

 

 

 

 

 

$

4.02

 

 

 

2,115.8

%

Performance Metrics:(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gold ounces sold(2)

 

 

1,200,000

 

 

 

 

 

 

 

1,004,000

 

 

 

 

 

 

 

196,000

 

 

 

19.5

%

Silver ounces sold(3)

 

 

45,493,000

 

 

 

 

 

 

 

35,013,000

 

 

 

 

 

 

 

10,480,000

 

 

 

29.9

%

Inventory turnover ratio(4)

 

 

7.9

 

 

 

 

 

 

 

9.1

 

 

 

 

 

 

 

(1.2

)

 

 

(13.2

%)

Number of secured loans at period end(5)

 

 

1,324

 

 

 

 

 

 

 

3,725

 

 

 

 

 

 

 

(2,401

)

 

 

(64.5

%)

 

(1)

See "Results of Segments" for ticket count volume by segment.

(2)

Gold ounces sold represents the ounces of gold product sold and delivered to the customer during the period, excluding ounces of gold recorded on forward contracts.

(3)

Silver ounces sold represents the ounces of silver product sold and delivered to the customer during the period, excluding ounces of silver recorded on forward contracts.

(4)

Inventory turnover ratio is the cost of sales divided by average inventory for the period presented above.  This calculation excludes precious metals held under financing arrangements, which are not classified as inventory on the consolidated balance sheets.

(5)

Number of outstanding secured loans to customers that are primarily collateralized by precious metals at the end of the period.

Three Months Ended December 31, 2020 Compared to Three Months Ended December 31, 2019

 

in thousands, except performance metrics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31,

 

2020

 

 

2019

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Revenues

 

$

1,518,744

 

 

 

100.000

%

 

$

1,055,590

 

 

 

100.000

%

 

$

463,154

 

 

 

43.9

%

Performance Metrics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gold ounces sold

 

 

479,000

 

 

 

 

 

 

 

428,000

 

 

 

 

 

 

 

51,000

 

 

 

11.9

%

Silver ounces sold

 

 

21,245,000

 

 

 

 

 

 

 

14,102,000

 

 

 

 

 

 

 

7,143,000

 

 

 

50.7

%

 

Revenues for the three months ended December 31, 2020 increased $463.2 million, or 43.9%, to $1.519 billion from $1.056 billion in 2019.  Excluding a decrease in forward sales of $24.9 million, revenues increased $488.0 million or 55.3%, which was primarily attributable to an increase in the total amount of gold and silver ounces sold and higher average selling prices of gold and silver.

Gold ounces sold for the three months ended December 31, 2020 increased 51,000 ounces, or 11.9%, to 479,000 ounces from 428,000 ounces in 2019.  Silver ounces sold for the three months ended December 31, 2020 increased 7,143,000 ounces, or 50.7%, to 21,245,000 ounces from 14,102,000 ounces in 2019. On average, the selling prices for gold increased by 28.3% and selling prices for silver increased by 40.8% during the three months ended December 31, 2020 as compared to 2019.

49


A combination of price volatility, increased demand, and supply constraints led to a significant expansion in premium spreads in the precious metals market during the period. These factors were brought on by the volatility in precious metal prices caused by macroeconomic and other events. These conditions are not representative of normal market conditions, and we are uncertain of the duration of these conditions.

Six Months Ended December 31, 2020 Compared to Six Months Ended December 31, 2019

 

in thousands, except performance metrics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended December 31,

 

2020

 

 

2019

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Revenues

 

$

3,384,860

 

 

 

100.000

%

 

$

2,536,604

 

 

 

100.000

%

 

$

848,256

 

 

 

33.4

%

Performance Metrics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gold ounces sold

 

 

1,200,000

 

 

 

 

 

 

 

1,004,000

 

 

 

 

 

 

 

196,000

 

 

 

19.5

%

Silver ounces sold

 

 

45,493,000

 

 

 

 

 

 

 

35,013,000

 

 

 

 

 

 

 

10,480,000

 

 

 

29.9

%

 

Revenues for the six months ended December 31, 2020 increased $848.3 million, or 33.4% to $3.385 billion from $2.537 billion in 2019.  Excluding a decrease in forward sales of $136.1 million, revenues increased $984.3 million, or 46.7%, which was primarily attributable to an increase in the total amount of gold and silver ounces sold and higher average selling prices of gold and silver.

Gold ounces sold for the six months ended December 31, 2020 increased 196,000 ounces, or 19.5%, to 1,200,000 ounces from 1,004,000 ounces in 2019.  Silver ounces sold for the six months ended December 31, 2020 increased 10,480,000 ounces, or 29.9%, to 45,493,000 ounces from 35,013,000 ounces in 2019. On average, the selling prices for gold increased by 29.2% and selling prices for silver increased by 37.8% during the six months ended December 31, 2020 as compared to 2019.

A combination of price volatility, increased demand, and supply constraints led to a significant expansion in premium spreads in the precious metals market during the period. These factors were brought on by the volatility in precious metal prices caused by macroeconomic and other events. These conditions are not representative of normal market conditions, and we are uncertain of the duration of these conditions.

Gross Profit

Three Months Ended December 31, 2020 Compared to Three Months Ended December 31, 2019

 

in thousands, except performance metric

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31,

 

2020

 

 

2019

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Gross profit

 

$

18,751

 

 

 

1.235

%

 

$

8,131

 

 

 

0.770

%

 

$

10,620

 

 

 

130.6

%

Performance Metric

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventory turnover ratio

 

 

3.2

 

 

 

 

 

 

 

3.3

 

 

 

 

 

 

 

(0.1

)

 

 

(3.0

%)

 

Gross profit for the three months ended December 31, 2020 increased by $10.6 million, or 130.6%, to $18.8 million from $8.1 million in 2019.  The overall gross profit increase was due to higher gross profits earned by the Wholesale Sales & Ancillary Services and Direct Sales segments.

The Company’s overall gross margin percentage increased by 46.5 basis points, or 60.4% to 1.235% from 0.770% in 2019. The increase in gross margin percentage was mainly attributable to significantly wider premium spreads due to increased demand, higher trading profits primarily due to increased volatility, and lower forward sales

 

Forward sales increase revenues but are associated with negligible gross margins. The Company enters into forward contracts to hedge its precious metals price risk exposure and not for speculative purposes.

Our inventory turnover rate for the three months ended December 31, 2020 decreased by 3.0%, to 3.2 from 3.3 in 2019.  The decrease in our inventory turnover rate was primarily due to the higher average inventory balances related to products available for sale and product financing arrangements partially offset by higher cost of sales during the three months ended December 31, 2020 as compared to 2019.

50


Six Months Ended December 31, 2020 Compared to Six Months Ended December 31, 2019

 

in thousands, except performance metric

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended December 31,

 

2020

 

 

2019

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Gross profit

 

$

54,896

 

 

 

1.622

%

 

$

16,471

 

 

 

0.649

%

 

$

38,425

 

 

 

233.3

%

Performance Metric

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventory turnover ratio

 

 

7.9

 

 

 

 

 

 

 

9.1

 

 

 

 

 

 

 

(1.2

)

 

 

(13.2

%)

 

Gross profit for the six months ended December 31, 2020 increased by $38.4 million, or 233.3%, to $54.9 million from $16.5 million in 2019.  The overall gross profit increase was due to higher gross profits from the Wholesale Sales & Ancillary Services and Direct Sales segments.

The Company’s overall gross margin percentage increased by 97.3 basis points, or 149.9% to 1.622% from 0.649% in 2019. The increase in gross margin percentage was mainly attributable to significantly wider premium spreads due to increased demand, higher trading profits primarily due to increased volatility, and lower forward sales (which increase revenues but are associated with negligible gross margins.

Forward sales increase revenues but are associated with negligible gross margins. The Company enters into forward contracts to hedge its precious metals price risk exposure and not for speculative purposes.

Our inventory turnover rate for the six months ended December 31, 2020 decreased by 13.2%, to 7.9 from 9.1 in 2019.  The decrease in our inventory turnover rate was primarily due to the higher average inventory balances related to product financing arrangements partially offset by higher cost of sales during the six months ended December 31, 2020 as compared to 2019.

Selling, General and Administrative Expense

Three Months Ended December 31, 2020 Compared to Three Months Ended December 31, 2019

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31,

 

2020

 

 

2019

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Selling, general, and administrative expenses

 

$

(9,033

)

 

 

(0.595

)%

 

$

(7,870

)

 

 

(0.746

)%

 

$

1,163

 

 

 

14.8

%

 

Selling, general and administrative expenses for the three months ended December 31, 2020 increased $1.2 million, or 14.8%, to $9.0 million from $7.9 million in 2019. The change was primarily due to increases in insurance costs of $0.5 million, financial and tax consulting costs of $0.4 million, compensation expense (including performance-based accruals) of $0.4 million and $0.1 million of advertising expense, which were partially offset by decreases in operating expenses of $0.1 million associated with our Direct Sales segment and depreciation and amortization expenses of $0.1 million.

 

Six Months Ended December 31, 2020 Compared to Six Months Ended December 31, 2019

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended December 31,

 

2020

 

 

2019

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Selling, general, and administrative expenses

 

$

(19,039

)

 

 

(0.562

)%

 

$

(16,140

)

 

 

(0.636

)%

 

$

2,899

 

 

 

18.0

%

 

Selling, general and administrative expenses for the six months ended December 31, 2020 increased $2.9 million, or 18.0%, to $19.0 million from $16.1 million in 2019. The change was primarily due to increases in compensation expense (including performance-based accruals) of $2.2 million, insurance costs of $0.4 million, financial and tax consulting costs of $0.4 million, computer software cost of $0.2 million and advertising cost of $0.2 million, which were partially offset by decreases in operating expenses of $0.3 million associated with our Direct Sales segment and $0.2 million of depreciation expense.

 

51


Interest Income

Three Months Ended December 31, 2020 Compared to Three Months Ended December 31, 2019

 

in thousands, except performance metric

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31,

 

2020

 

 

2019

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Interest income

 

$

4,533

 

 

 

0.298

%

 

$

6,232

 

 

 

0.590

%

 

$

(1,699

)

 

 

(27.3

%)

Performance Metric

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of secured loans at period-end

 

 

1,324

 

 

 

 

 

 

 

3,725

 

 

 

 

 

 

 

(2,401

)

 

 

(64.5

%)

 

Interest income for the three months ended December 31, 2020 decreased $1.7 million, or 27.3%, to $4.5 million from $6.2 million in 2019.  The aggregate decrease in interest income was primarily due to lower interest income earned by our Secured Lending segment, partially offset by higher other finance product income.

Interest income from our Secured Lending segment decreased by $2.0 million, or by 49.1% in comparison to the same year-ago period.  The decrease in interest income earned from the segment’s secured loan portfolio was primarily due to lower average monthly loan balances during the current period as compared to the average monthly loan balances for the comparable period.

The number of secured loans outstanding decreased by 64.5% to 1,324 from 3,725 in 2019.  Typically, the number of loans increases during periods of increasing precious metal prices and decrease during periods of declining precious metal prices.  Silver prices declined significantly in the quarter ended March 31, 2020, resulting in an increase in the margin calls and borrower loan liquidations due to a decline in the value of the precious metals collateral. The Company did not incur loan losses related to the margin calls or borrower loan liquidations during this or the comparable period. In the three successive quarters, as silver prices rebounded, the Company experienced growth in the number of loans.

The interest income from our other finance product income increased by $0.3 million in comparison to the same year-ago period.

Six Months Ended December 31, 2020 Compared to Six Months Ended December 31, 2019

 

in thousands, except performance metric

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended December 31,

 

2020

 

 

2019

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Interest income

 

$

8,516

 

 

 

0.252

%

 

$

12,000

 

 

 

0.473

%

 

$

(3,484

)

 

 

(29.0

%)

Performance Metric

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of secured loans at period-end

 

 

1,324

 

 

 

 

 

 

 

3,725

 

 

 

 

 

 

 

(2,401

)

 

 

(64.5

%)

 

Interest income for the six months ended December 31, 2020 decreased $3.5 million, or 29.0%, to $8.5 million from $12.0 million in 2019.  The aggregate decrease in interest income was primarily due to lower interest income earned by our Secured Lending segment, partially offset by higher other finance product income.

The interest income from our Secured Lending segment decreased by $3.9 million or by 52.3% in comparison to the same year-ago period.  The decrease in interest income earned from the segment’s secured loan portfolio was primarily due to lower average monthly loan balances during the current period as compared to the average monthly loan balances for the comparable period.

The number of secured loans outstanding decreased by 64.5% to 1,324 from 3,725 in 2019.  Typically, the number of loans increases during periods of increasing precious metal prices and decrease during periods of declining precious metal prices.  Silver prices declined significantly in the quarter ended March 31, 2020, resulting in an increase in the margin calls and borrower loan liquidations due to a decline in the value of the precious metals collateral. The Company did not incur loan losses related to the margin calls or borrower loan liquidations during this or the comparable period. In the three successive quarters, as silver prices rebounded, the Company experienced growth in the number of loans.

The interest income from our other finance product income increased by $0.4 million in comparison to the same year-ago period.

52


Interest Expense

Three Months Ended December 31, 2020 Compared to Three Months Ended December 31, 2019

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31,

 

2020

 

 

2019

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Interest expense

 

$

(5,037

)

 

 

(0.332

)%

 

$

(5,081

)

 

 

(0.481

)%

 

$

(44

)

 

 

(0.9

%)

 

Interest expense for the three months ended December 31, 2020 decreased $44.0 thousand, or 0.9% to $5.0 million from $5.1 million in 2019.  The decrease in interest expense was primarily due to a reduction in loan servicing fees, partially offset by an increase interest expense related to product financing arrangements.  As compared to the same year-ago period, interest expense related to loan servicing fees decreased by $0.4 million, which was offset by an increase of $0.4 million related to product financing arrangements.

Six Months Ended December 31, 2020 Compared to Six Months Ended December 31, 2019

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended December 31,

 

2020

 

 

2019

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Interest expense

 

$

(9,330

)

 

 

(0.276

)%

 

$

(10,223

)

 

 

(0.403

)%

 

$

(893

)

 

 

(8.7

%)

 

Interest expense for the six months ended December 31, 2020 decreased $0.9 million, or 8.7% to $9.3 million from $10.2 million in 2019.  The decrease was primarily due to reductions in interest expense related to our Trading Credit Facility and loan servicing fees, partially offset by increases in interest expense related to product financing arrangements and liability on borrowed metals. As compared to the same year-ago period, the amount of interest expense that decreased, by component, included: (i) $0.9 million of Trading Credit Facility interest expense (including debt amortization costs), (ii) $0.6 million of loan servicing cost, offset by increased interest expense of (iii) $0.5 million related to product financing arrangements, and (iv) $0.1 million of liabilities on borrowed metals.

Other income, net

Three Months Ended December 31, 2020 Compared to Three Months Ended December 31, 2019

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31,

 

2020

 

 

2019

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Other income, net

 

$

2,567

 

 

 

0.169

%

 

$

150

 

 

 

0.014

%

 

$

2,417

 

 

 

1,611.3

%

 

Other income, net for the three months ended December 31, 2020 increased $2.4 million, or 1611.3% to $2.6 million from $0.2 million in 2019. The aggregate increase was primarily due to an increase of $2.3 million in the Company’s proportionate share of our equity-method investees' earnings and an increase of $0.2 million in royalties earned compared to the prior comparable quarter.

 

Six Months Ended December 31, 2020 Compared to Six Months Ended December 31, 2019

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended December 31,

 

2020

 

 

2019

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Other income (expense), net

 

$

7,052

 

 

 

0.208

%

 

$

(16

)

 

 

(0.001

)%

 

$

7,068

 

 

 

44,175.0

%

 

Other (expense) income, net for the six months ended December 31, 2020 increased $7.1 million, or 44,175.0% to $7.1 million from $16 thousand in 2019. The aggregate increase was primarily due to an increase of $6.4 million in the Company’s proportionate share of our equity-method investees' earnings and an increase of $0.5 million in royalties earned compared to the prior comparable period.

53


Provision for Income Taxes

Three Months Ended December 31, 2020 Compared to Three Months Ended December 31, 2019

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31,

 

2020

 

 

2019

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Income tax expense

 

$

(2,586

)

 

 

(0.170

)%

 

$

(432

)

 

 

(0.041

)%

 

$

2,154

 

 

 

498.6

%

 

Our income tax expense was $2.6 million and $0.4 million for the three months ended December 31, 2020 and 2019, respectively.  Our effective tax rate was approximately 21.9% and 25.6% for the three months ended December 31, 2020 and 2019, respectively.  For the three months ended December 31, 2020, our effective tax rate differs from the federal statutory rate primarily due to state taxes (net of federal tax benefit), Section 162(m) executive compensation disallowance, offset by the exclusion of profits related to the Company's minority interests, special deduction related to foreign-derived intangible income, and share-based compensation.

 

Six Months Ended December 31, 2020 Compared to Six Months Ended December 31, 2019

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended December 31,

 

2020

 

 

2019

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Income tax expense

 

$

(9,097

)

 

 

(0.269

)%

 

$

(537

)

 

 

(0.021

)%

 

$

8,560

 

 

 

1,594.0

%

 

Our income tax expense was $9.1 million and $0.5 million for the six months ended December 31, 2020 and 2019, respectively.  Our effective tax rate was approximately 21.7% and 25.6% for the six months ended December 31, 2020 and 2019, respectively.  For the six months ended December 31, 2020, our effective tax rate differs from the federal statutory rate primarily due to state taxes (net of federal tax benefit), Section 162(m) executive compensation disallowance, offset by the exclusion of profits related to the Company's minority interests, special deduction related to foreign-derived intangible income, and share-based compensation.

.

SEGMENT RESULTS OF OPERATIONS

The Company conducts its operations in three reportable segments: (i) Wholesale Sales & Ancillary Services, (ii) Secured Lending and (iii) Direct Sales. 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 FASB Accounting Standards Codification (“ASC”).

Results of Operations  — Wholesale Sales & Ancillary Services Segment

The Company operates its Wholesale Sales & Ancillary Services segment through A-Mark Precious Metals, Inc., and its wholly-owned subsidiaries, A-Mark Trading AG (“AMTAG”), Transcontinental Depository Services ("TDS"), and A-M Global Logistics, LLC. ("Logistics"), and its partially-owned subsidiary, AM&ST Associates, LLC. ("AMST" or "SilverTowne" or the "Mint"). Also, the Wholesale Sales & Ancillary Services segment includes the consolidating eliminations of inter-segment transactions.

54


Overview of Results of Operations for the Three Months Ended December 31, 2020 and 2019

— Wholesale Sales & Ancillary Services Segment

The operating results of our Wholesale Sales & Ancillary Services segment for the three months ended December 31, 2020 and 2019 are as follows:

 

in thousands, except performance metrics

 

 

 

 

 

 

 

Three Months Ended December 31,

 

2020

 

 

2019

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Revenues

 

$

1,477,489

 

 

 

100.000

%

 

$

1,038,154

 

 

 

100.000

%

 

$

439,335

 

 

 

42.3

%

Gross profit

 

 

13,245

 

 

 

0.896

%

 

 

6,597

 

 

 

0.635

%

 

$

6,648

 

 

 

100.8

%

Selling, general, and administrative expenses

 

 

(6,685

)

 

 

(0.452

)%

 

 

(5,477

)

 

 

(0.528

)%

 

$

1,208

 

 

 

22.1

%

Interest income

 

 

2,498

 

 

 

0.169

%

 

 

2,230

 

 

 

0.215

%

 

$

268

 

 

 

12.0

%

Interest expense

 

 

(2,915

)

 

 

(0.197

)%

 

 

(2,444

)

 

 

(0.235

)%

 

$

471

 

 

 

19.3

%

Other income, net

 

 

2,362

 

 

 

0.160

%

 

 

102

 

 

 

0.010

%

 

$

2,260

 

 

 

2,215.7

%

Unrealized gains on foreign exchange

 

 

19

 

 

 

0.001

%

 

 

125

 

 

 

0.012

%

 

$

(106

)

 

 

(84.8

%)

Net income before provision for income taxes

 

$

8,524

 

 

 

0.577

%

 

$

1,133

 

 

 

0.109

%

 

$

7,391

 

 

 

652.3

%

Performance Metrics:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gold ounces sold(1)

 

 

465,000

 

 

 

 

 

 

 

420,000

 

 

 

 

 

 

 

45,000

 

 

 

10.7

%

Silver ounces sold(2)

 

 

20,972,000

 

 

 

 

 

 

 

13,976,000

 

 

 

 

 

 

 

6,996,000

 

 

 

50.1

%

Wholesale Sales ticket volume(3)

 

 

29,797

 

 

 

 

 

 

 

30,554

 

 

 

 

 

 

 

(757

)

 

 

(2.5

%)

 

(1)

Gold ounces sold represents the ounces of gold product sold and delivered to the customer during the period, excluding ounces of gold recorded on forward contracts.

(2)

Silver ounces sold represents the ounces of silver product sold and delivered to the customer during the period, excluding ounces of silver recorded on forward contracts.

(3)

Wholesale Sales ticket volume represents the total number of product orders processed by A-Mark.

Overview of Results of Operations for the Six Months Ended December 31, 2020 and 2019

— Wholesale Sales & Ancillary Services Segment

The operating results of our Wholesale Sales & Ancillary Services segment for the six months ended December 31, 2020 and 2019 are as follows:

 

in thousands, except performance metrics

 

 

 

 

 

 

 

Six Months Ended December 31,

 

2020

 

 

2019

 

 

$

 

 

%

 

 

 

$

 

 

% of

revenue

 

 

$

 

 

% of

revenue

 

 

Increase/

(decrease)

 

 

Increase/

(decrease)

 

Revenues

 

$

3,291,197

 

 

 

100.000

%

 

$

2,499,087

 

 

 

100.000

%

 

$

792,110

 

 

 

31.7

%

Gross profit

 

 

43,867

 

 

 

1.333

%

 

 

13,357

 

 

 

0.534

%

 

$

30,510

 

 

 

228.4

%

Selling, general, and administrative expenses

 

 

(14,292

)

 

 

(0.434

)%

 

 

(11,279

)

 

 

(0.451

)%

 

$

3,013

 

 

 

26.7

%

Interest income

 

 

4,936

 

 

 

0.150

%

 

 

4,492

 

 

 

0.180

%

 

$

444

 

 

 

9.9

%

Interest expense

 

 

(5,863

)

 

 

(0.178

)%

 

 

(5,270

)

 

 

(0.211

)%

 

$

593

 

 

 

11.3

%

Other income, net

 

 

6,488

 

 

 

0.197

%

 

 

114

 

 

 

0.005

%

 

$

6,374

 

 

 

5,591.2

%

Unrealized (losses) gains on foreign exchange

 

 

(78

)

 

 

(0.002

)%

 

 

3

 

 

 

0.000

%

 

$

81

 

 

 

2,700.0

%

Net income before provision for income taxes

 

$

35,058

 

 

 

1.065

%

 

$

1,417

 

 

 

0.057

%

 

$

33,641

 

 

 

2,374.1

%

Performance Metrics:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gold ounces sold(1)

 

 

1,169,000

 

 

 

 

 

 

 

986,000

 

 

 

 

 

 

 

183,000

 

 

 

18.6

%

Silver ounces sold(2)

 

 

44,890,000

 

 

 

 

 

 

 

34,696,000

 

 

 

 

 

 

 

10,194,000

 

 

 

29.4

%

Wholesale Sales ticket volume(3)

 

 

65,138

 

 

 

 

 

 

 

66,802

 

 

 

 

 

 

 

(1,664

)

 

 

(2.5

%)

 

(1)

Gold ounces sold represents the ounces of gold product sold and delivered to the customer during the period, excluding ounces of gold recorded on forward contracts.

(2)

Silver ounces sold represents the ounces of silver product sold and delivered to the customer during the period, excluding ounces of silver recorded on forward contracts.

(3)