Q2 2024 A-Mark Precious Metals Inc Earnings Call

Participants

Gregory Roberts; Chief Executive Officer, Director; A-Mark Precious Metals Inc

Kathleen Simpson-Taylor; CFO; A-Mark Precious Metals Inc

Thor Gjerdrum; President; A-Mark Precious Metals Inc

Mike Baker; Analyst; D.A. Davidson & Co.

Lucas Pipes; Analyst; B. Riley Securities, Inc.

Andrew Scutt; Analyst; ROTH MKM Partners, LLC

Greg Gibas; Analyst; Northland Capital Markets

Brandon Coffin; Analyst; Praetorian Capital

Sy Jacobs; Analyst; Jacobs Asset Management

Presentation

Operator

Good afternoon, and welcome to A-Mark Precious Metals conference call for the fiscal second quarter ended December 31, 2023. My name is Paul and I will be your operator this afternoon. Before this call, A-Mark issued its results for the fiscal quarter second quarter 2024 in a press release, which is available in the Investor Relations section of the company's website at www.amark.com. You can find the link to the Investor Relations section at the top of the homepage.
Joining us for today's call are A-Mark's CEO, Greg Roberts; President, Thor Gjerdrum; CFO, Kathleen Simpson-Taylor Following their remarks, we will open the call to your questions. Then before we conclude the call, I'll provide the necessary cautions regarding the forward-looking statements made by management. During this call. I would like to remind everyone that this call is being recorded and will be made available for replay via a link available in the Investor Relations section of A-Mark's website.
Now I would like to turn the call over to A-Mark's CEO, Mr. Greg Roberts. Sir, please proceed.

Gregory Roberts

Thank you, Paul, and good afternoon, everyone. Thank you for joining our call today. Our second quarter results demonstrate the strength of our fully integrated platform to generate profitable results. We delivered $0.57 per diluted share and generated $25.1 million of non-GAAP EBITDA during the quarter, underscoring our ability to manage less favorable market conditions while still delivering solid results.
During the quarter, we successfully repaid our notes payable for $100 million on our asset-backed securitization and continued to enhance shareholder value by increasing our share repurchase program by buying back an additional 440,000 shares of our common stock for approximately $12 million. This morning we announced that we entered into a nine nonbinding letter of intent with AMS. Holdings, a leading multichannel marketer of vintage and modern coins, which provided for three transactions. The most significant of these transactions is our planned acquisition of LPM. Group Limited, one of Asia's largest fabricated precious metals dealers. This strategic acquisition is an important step in growing A-Mark's international presence in Asia and reflects our commitment to expanding A-Mark's global reach with access to A-Mark's inventory and resources. We expect that LPM will be able to secure larger, larger purchase orders and will be able to provide their customers with a broader set of product offerings. We are hopeful that our proven wholesale and e-commerce expertise and our portfolio of products and ancillaries.
Ancillary services such as storage and fulfillment, will assist LPM in its planned growth strategy. In addition to the LPM transaction pioneers coin exchange, our strategic affiliate, of which A-Mark owns 49% and one of the nation's largest distributors of modern certified coins will be acquiring all of the assets of modern coin market from AMS. modern coin market is one of the more established modern bullion coin dealers in the US while also shipping to many international locations through this strategic acquisition, Pinehurst intends to further expand its direct to consumer business and its product offering to its customers.
The third transaction involves a joint venture between A-Mark, Pinehurst and Stax powers new mathematics, a related party of A-Mark to acquire a 10% common equity interest in AMS. We expect to close these three transaction simultaneously by the end of this month, subject to preparation and execution of definitive agreements and the receipt of third party consents or approval.
As we continue to invest in growing our platform and global footprint. We will also continue our focused on logistics automation initiatives at our AMGL. facility in Las Vegas. These initiatives are designed to enhance our operational efficiency, enabling us to effectively manage a larger number of skews and increased volume, all while minimizing operational costs. We are confident that these strategic measures will support our growth strategy as we strive to further expand and diversify our business.
Now I will hand the call over to our CFO, Kathleen Simpson-Taylor, who will provide a more detailed overview of our financials. Then A-Mark President, Thor Gjerdrum, will discuss our key operating metrics. Afterwards, I will provide further insights into our business and growth strategy. Kathleen?

Kathleen Simpson-Taylor

Thank you, Greg, and good afternoon, everyone. Our revenues for fiscal Q2 2024 increased 7% to $2.079 billion from $1.950 billion in Q2 of last year, excluding an increase of $231.6 million of forward sales revenue decreased $102.5 million or 7%, which was due to a decrease in gold and silver ounces sold, partially offset by higher average selling prices of gold and silver. The GTC segment contributed 18% and 23% of the consolidated revenue in the fiscal second quarters of 2024 and 2023, respectively. Revenue contributed by J&D represented 16% of the consolidated revenues for Q2 of 2024 compared to 21% in Q2 of last year.
For the six-month period, our revenues increased 19%, $4.563 billion from $3.850 billion in the same year ago period. Excluding an increase of $891.6 million of forward sales, revenues decreased $178.2 million or 6%, which was due to a decrease in gold and silver ounces sold, partially offset by higher average selling prices of gold and silver. The DTC segment contributed 15% and 23% of the consolidated revenue for the six months ended December 31, 2023, and 2022, respectively.
Revenue contributed by J&D, representing 14% of the consolidated revenues for the six months ended December 31st, 2023, compared with 21% in the same year ago period. Gross profit for fiscal Q2 2024 decreased 28% to $46.0 million or 2.21% of revenue from $64.0 million or 3.28% of revenue in Q2 of last year. The decrease in gross profit was due to lower gross profit earned from both the wholesale sales and ancillary services and DTC segments.
Gross profit contributed by the DTC. segment represented 48% of the consolidated gross profit in fiscal Q2 2024 compared to 57% in the same year ago period. Gross profit contributed by JMB represented 41% of the consolidated gross profit in fiscal Q2 2024 compared to 51% in Q2 of last year. For the six month period, gross profit decreased 32% to $95.4 million or 2.09% of revenue from $140.6 million or 3.65% of revenue in the same year ago period.
The decrease in gross profit was due to lower gross profit earned from both the wholesale sales and ancillary services and DTC segment. Gross profit contributed by the DTC segment represented 45% of the consolidated gross profit in the six month period ended December 31, 2023, compared to 56% in the same year ago period. Gross profit contributed by JMB represented 38% and 49% of consolidated gross profit for the six months ended December 31, 2023, and 2022, respectively.
SG&A expenses for fiscal Q2 2020 more increased 8% to $22.4 million from $20.8 million in Q2 of last year. The change was primarily due to an increase in compensation expense, including performance-based accrual of $1.4 million, higher consulting and professional fees of $0.6 million, an increase in information technology costs of $0.4 million, partially offset by a decrease in insurance costs of $0.9 million and lower advertising costs of $0.4 million.
For the six month period, SG&A expenses increased 15% to $44.2 million from $38.6 million in the same year ago period. The change was primarily due to an increase in consulting and professional fees of $2.6 million, an increase in compensation expense, including performance-based accruals of $2.6 million, an increase in information technology costs of $0.7 million, partially offset by a decrease in insurance costs of $0.5 million.
Depreciation and amortization expense for fiscal Q2 2024 decreased 14% to $2.8 million from $3.3 million in Q2 of last year. The change was primarily due to a $0.6 million decrease in amortization of acquired intangibles related to JMB.
For the six month period, depreciation and amortization expense decreased 13% to $5.6 million from $6.4 million in the same year ago period. The change was primarily due to a $1.1 million decrease in amortization of acquired intangibles related to JMB.
Interest income for fiscal Q2 2024 increased 27% to $6.3 million from $5.0 million in Q2 of last year. The aggregate increase in interest income was primarily due to an increase in other finance product income of $0.8 million and an increase in interest income earned by our secured Lending segment of $0.6 million.
For the six month period, interest income increased 23% to $12.4 million from $10.1 million in the same year ago period. The aggregate increase in interest income was primarily due to an increase in other finance product income of $1.5 million and an increase in interest income earned by our secured lending segment of $0.8 million.
Interest expense for fiscal Q2 2024 increased 41% to $10.2 million from $7.2 million in Q2 of last fiscal year. The increase in interest expense was primarily due to an increase of $2.4 million associated with our trading credit facility due to an increase in interest rates as well as increased borrowings and an increase of $1.1 million related to product financing arrangements, partially offset by a decrease of $0.3 million related to the AMCS. notes, including amortization of debt issuance costs due to their repayment in December 2023.
For the six month period, interest expense increased 50% to $20.0 million from $13.4 million in the same year ago period. The increase was primarily driven by an increase of $5.6 million associated with our trading credit facility due to an increase in interest rates as well as increased borrowings, an increase of $1.6 million related to product financing arrangements, partially offset by a decrease of $0.4 million related to the AMCF note, including amortization of debt issuance costs due to their repayment in December 2023. We also had a $0.2 million decrease in loan servicing fees.
Earnings from equity method investments in Q2 2024 decreased 83% to $0.8 million from $4.7 million in the same year ago quarter. For the six month period, earnings from equity method investments decreased 53% to $3.5 million from $7.3 million in the same year ago period. The decrease in both periods was due to decreased earnings of our equity method investees.
Net income attributable to the company for the second quarter of fiscal 2024 totaled $13.8 million or $0.57 per diluted share. This compares to net income attributable to the company of $33.5 million or $1.35 per diluted share in Q2 of last year. For the six month period, net income attributable to the company totaled $32.6 million, or $1.34 per diluted share which compares to net income attributable to the company of $78.6 million or $3.18 per diluted share in the same year ago period.
Adjusted net income before provision for income taxes, a non-GAAP financial measure, which excludes acquisition expenses, amortization and depreciation for Q2 fiscal 2024 totaled $21.7 million, a decrease of 53% compared to $46.5 million in the same year ago quarter. Adjusted net income before provision for income taxes for the six month period totaled $48.5 million, a 55% decrease from $107.7 million in the same year ago period.
EBITDA, a non-GAAP liquidity measure for Q2 fiscal 2024 totaled $25.1 million, a 48% decrease compared to $48.7 million in Q2 of fiscal 2023. EBITDA for the six month period totaled $55.5 million, a 50% decrease compared to $110.9 million in the same year ago period.
Turning to our balance sheet. At quarter end, we had $28.5 million of cash compared to $39.3 million at the end of fiscal year 2023 Our tangible net worth at the end of the quarter was $426.1 million, down from $436.8 million at the end of the prior fiscal year. A-Mark's Board of Directors has continued to maintain the company's regular quarterly cash dividend program of $0.20 per common share. The most recent quarterly cash dividend was paid in January. It is expected that the next quarterly dividend will be paid in April 2024.
That completes my financial summary. Now I will turn the call over to Thor, who will provide an update on our key operating metrics. Thor?

Thor Gjerdrum

Thank you, Kathleen. Looking at our key operating metrics for the second quarter of fiscal 2024, we sold 450,000 ounces of gold in Q2 fiscal 2024, which was down 20% from Q2 of last year and down 9% from the prior quarter. For the six month period, we sold 945,000 ounces of gold, which is down 21% from the same year ago period. We sold 26.6 million ounces of silver in Q2 fiscal 2024, which is down 30% from Q2 of last year and down 13% from last quarter.
For the six month period, we sold 57.0 million ounces of silver, which was down 23% from the same year ago period. The number of new customers in the DTC segment, which is defined as the number of customers that have registered set up a new account for made a purchase for the first time during the period was 52,500 in Q2 fiscal 2024, which is down 60% from Q2 of last year and increased 34% from last quarter.
For the six-month period, the number of new customers to the DTC segment was 91,600, which is down 49% from 180,200 new customers in the same year ago period. The number of total customers in the DTC segment at the end of second quarter was approximately 2.4 million, which was an 11% increase from the prior year. The year over year increase in total customers was due to organic growth of our GMV customer base, as well as from acquired customer lists.
The DGC segment average order value, which represents the average dollar value of product orders, excluding accumulation program orders delivered to DCC segment customers during Q2 fiscal 2024 with $2,218, which is down 7% from Q2 fiscal 2023 and down 9% from the prior quarter. For the six month period, our DTC average order value was $2,316, which was down 2% from the same year-ago period.
For the fiscal second quarter, our inventory turn ratio was 1.9, which is a 21% decrease from 2.4 in Q2 of last year and a 24% decrease from 2.5 in the prior quarter. For the six month period, our inventory turn ratio was 4.3, a 4% increase from 4.5 in the same year ago period.
Finally, the number of secured loans at the end of December totaled 715, a decrease of 32% from December 31, 2022, a decrease of 11% from the end of September, while the number of secured loans decreased, our secured loan receivable balance increased over the same period, bringing the value of our loan portfolio as of December 31, 2023, to $106.6 million, a 4% increase from December 31, 2022, and a 7% increase from September 30, 2023.
That concludes my prepared remarks. I will now turn it over to Greg for closing remarks. Greg?

Gregory Roberts

Thank you, Thor and Kathleen. A-Mark's strategic focus remains on opportunities to further expand our geographic presence and market reach that will create synergies with A-Mark's fully integrated platform, including our reliable access to supply our successful logistics footprint and strong customer relations, while we work towards finalizing the transactions with AMS, we look forward to our expansion into Asia and to realizing the synergies and growth potential that these strategic initiatives may bring. Our commitment to regenerating stockholder value remains firm, and we are confident in A-Mark's, diversified and proven business model. That concludes my prepared remarks. Operator?

Question and Answer Session

Operator

(Operator Instructions) Mike Baker, DA Davidson.

Mike Baker

Thanks, guys. I fully appreciate that the acquisitions are they look good and presume accretive and strategically make a ton of sense? I wanted to ask you about this quarter from where the EBITDA was a little bit less than the last quarter and the earnings were less than the last quarter and frankly, less than consensus estimates for whatever consensus estimates are worth, but it felt like the business was sort of bottoming last quarter, but apparently not because this quarter, you know, it seems a little bit softer, I guess any visibility into when EBITDA might improve or EPS might improve when we might get back to the idea of, you know, at a minimum $1.50 over a six month period type of metrics.

Gregory Roberts

Yeah, thank you for the question. I would say that the quarter was -- saw some continued softness. I think premiums on fabricated silver products, in particular, it continued to be weaker than we have seen historically over the last 12 months. And there currently is plenty of silver supply in the marketplace. And that is, you know, there that's affecting the premium that that people are willing to pay for the products. So we have been and we're competing and keeping our market share, but we have had to adjust our premiums down both at a wholesale and a retail level. I think that on a bright note, the So lower premiums have given us some great opportunities to acquire inventory, which we plan on doing and acquiring inventory that we we think will be most valuable.
Looking forward, we've been able to make some very opportune purchases, which you will see reflected in our balance sheet and our levels of inventory that we're carrying at the same time, we're looking to go through our inventories and move out or get rid of things that we don't think have great potential looking forward so there has been a bit of reshuffling both last quarter and this quarter. There are certainly some bright spots. We see the demand for US Silver Eagles continuing to be strong at the moment and that particular product, it continues to be on allocation from the US Mint. And we have been continuing to buy more silver eagles than our allocation from some of the other distributors.
So I think that's it's what we're dealing with right now. I think the spot prices in particular have been fairly range-bound, and that hasn't really caused any panic or any call call to action for customers. And this we've seen this before when when spot prices are range-bound and that's certainly a factor right now. I think the other factor is up until a week or two ago. You know, the equity markets have been performing very well and that can that can draw money away from, you know, from our markets. So I think we're seeing a little bit of that also.

Mike Baker

Okay. That makes sense on. Can I ask a follow-up on those points on student in terms of the spreads. The way I look at where we're tracking at Silver spreads right now, look like they're in the $7 to $8 range goals. I don't know $105, $106, something like that. Can you remind us historical historically what those ranges are, what we really start making more money?
What kind of spread is better for you guys, obviously higher is better? What gets you excited?

Gregory Roberts

To be honest with you, I think making $25 million EBITDA in this market in this quarter was a fantastic result.
So let's start there. Secondly, I don't understand your question. So you're going to have to be more specific.
I don't have the numbers you just threw out. You need to be specific what you're asking because I didn't it didn't make sense to me and I've heard a lot of questions, but that one, I don't know and the simple answer is the higher the spreads between our cost of product and what we sell them for the more money we make. It is pretty basic?

Mike Baker

No, sorry. Let me let me rephrase it.
Maybe I just didn’t ask properly. We're trying what I'm trying to do is we're tracking like the spot prices versus retail prices that gambling in a number of competitors. And if we just look at Silver, for instance, it looks like it's around silver spreads around $7. I think the way we look at it maybe I'm wrong, but that's what --

Gregory Roberts

That doesn't really make sense to me. It depends on what it depends on what specific product you're talking about, so it can help you a little bit. The United States Mint sell Silver Eagles at approximately $3 premium per ounce over the melt value the and then whether A-Mark sells at wholesale at $4 or whether JM Bullion sales at wholesale at a $6, $7 premium, that's that's what the coins end up selling out at if you're talking about a SilverTowne or Sunshine minted product or even a Royal Canadian Mint product, that premium is going to be lower than the Silver Eagle. So the question about premium is really it has to be tied specifically to the product. And there's no one product that is going to instantly make A-Mark more profitable because we probably sell 1,200 different products or more.
As it relates to the question on gold, I don't know what you're talking about $100 per ounce -- a $100 premium per ounce.

Mike Baker

I'll just follow up after I'll take it up offline. Thank you.

Operator

Lucas Pipes, B. Riley Lucas, your line of Liav.

Lucas Pipes

Thank you very much, operator. Good afternoon, everyone. I'll start with some high-level questions on the strategy and then maybe dig into some more specifics. But first, Dan, first question is kind of how do you think about your presence in Asia on a cultural issues to be aware of? Or how do you envision an integration to proceed? Thank you for your perspective.

Gregory Roberts

I mean, we're very excited enthusiastic about this acquisition as well as all three of the acquisitions, but leading with LPM, which we believe and based on the price we paid, it's the most significant of the three transactions on LPM, as you can see from our release has been around for over a decade they've been operating exclusively in Hong Kong. And we here at A-Mark have looked at a number of different opportunities in Asia and over the last five or six years. And we've never been able in order to complete a transaction that we thought was good for us as well as good for the other side of this transaction came together. It's through a fairly long negotiating period and quite a bit of diligence to this point. And obviously, when you have a lot of different factors as well as an international target, it was fairly complicated for for the diligence side and for us to get to a deal. We're very happy with the deal.
We're happy with the price we paid. We're happy with the earn out potential here for the seller, which would be very good for us. We looked at the whole transaction. It is a structure and this is the risk risk to reward properly recognized, and we think that has happened. So we're happy with it. I think it's important to note that if historically we were a wholesale trading company before we got into our DTC segment. And as we've now expanded that greatly with JM, we believe we've built up a tremendous amount of expertise in DTC and e-commerce. Retail LPM currently is a supplier of a number of different specialty products and they supply those all around the world, both retail and wholesale.
They have a number of licenses and a number of relationships with some sovereign mints private means different product suppliers that we believe will be very accretive to A-Mark that A-Mark currently does not have in their wholesale segment. LPM currently is approximately 75% to 80% wholesale and about 20%, 25% retail. So we think there's a tremendous amount of opportunity in the region to grow the retail side of things.
Obviously, we have struggled over the years by not making an acquisition or expanding in this area for the cultural reasons that we just aren't familiar with. I think the opportunity for us to acquire the business. The customers on the intellectual property and the pipeline of products that we've not had access to before is extremely important. This transaction gives us the best of both worlds. It gives us a very strong wholesaler, which if you're going to be doing business in Asia, you need a wholesaler and you need a trading desk and you need people that are used to trading both wholesale and retail and you need the right people.
And I think we're very excited about the LPM staff, particularly the CTO and founder, Charles Chang. And we think we are fortunate that we've been able to acquire a business or we are going to acquire the business that has both wholesale and retail bringing in both Charlie's local knowledge and his cultural knowledge of being in business in Asia as long as he has as well as the expertise we bring from Rob to Sally and his team at JM Bullion on e-commerce, we're very enthusiastic about what the potential is and we think that we are well positioned right now to go there and to go to that expansion.
I think we're also closely looking at the Singapore market. We believe that LPM is a good platform for us to expand into Singapore, and we think there's some great opportunity there, both from the local population as well as visitors to Singapore, our people who are doing business in Singapore that are from other countries. So we think it's a very that's a very safe environment for us, a very safe place to expand into. And we're very comfortable with LPM in Hong Kong right now. But just see this as just a really good, a really good opportunity for A-Mark to expand outside of the United States.

Lucas Pipes

That's very helpful. Thank you very much, Greg. And two follow-ups on that. Should we think of this as a kind of rich ad platform into the Asian market? And then to kind of what is your appetite for M&A? And after after this announcement today, is it look, we put some good amount here on our plate, but let us digest this first or do you think you will continue to be active elsewhere around the world or North America.

Gregory Roberts

And for sure, I think that the platform and the people and the business that we're acquiring really gives us a great starting point to organically grow LPMs business in Hong Kong. So I think it's very, very important and we've looked long and hard at this acquisition and we're very enthusiastic about this opportunity is going to give us. And I think again, just to reiterate that we really we really to expand on the e-commerce side and retail in Asia, we would have needed to either relocate or we would have needed a desk and we need logistics and storage, and we would have needed to create all those things before we could have even moved into the DTC market and so the ability to acquire this business that has both things going is really a great platform for us and we believe it will be very good and we can expand very efficiently.
As I've said before, one of the silver linings to a slower market and lower premiums is that we are seeing our opportunities for M&A, and we are look still continue to look at a number of potential acquisitions. And I think that the the two three months that we are experienced, where things are softer, it's also very difficult on our competitors and I have always been a big proponent of if you buy your competitors, good things happen and we see there are there is opportunity out there and we we're still very enthusiastic about the other M&A opportunities. I think the size of this transaction, the $41 million as well as the other two smaller acquisitions, I think it's a very good size for us. It's about 10% of our tangible net worth. I think that we are we're able to do this very comfortably with no new debt or without any thought of raising more money.
So I think that this LPM transaction is the right size for a market the moment. But I think we thought long and hard about this deal. And I think A-Mark is very focused on being able to continue everything that we've talked about and everything we've been able to do in the past. We want to make sure that everything is sized properly so that we can look at things from a risk reward standpoint without having to to be tight. And I think that the key components for us are continuing our dividends continuing to buy back stock when we believe that the stock is undervalued and returning shareholder value that way as well as being able to take advantage of opportunity, inventory times and up and things that we can buy and add to our inventory as well as taking advantage of M&A opportunities.
And when we are able to look at results of targets and be able to negotiate from a little bit more from strength in that the results from targets we're looking at aren't going to be as robust as maybe they would have been two years ago. So I think the Company is very well positioned and we're very thoughtful in all of these sizing and the transactions we're looking at and feel very good that that we're in this for the long haul and we can make very good decisions and take advantage of all of these opportunities as they present themselves.

Operator

Andrew Scutt, ROTH MKM.

Andrew Scutt

Good afternoon, guys, and thanks for taking my questions on. First, I'd just like to ask a few follow-ups on LPBN, maybe asked a little bit differently. So you mentioned in the prepared remarks, you see opportunities in leveraging your own inventory to help LPM secure larger orders. Audio is just kind of wondering how many skews and or products, whatnot, you'll be able to provide on to LPM.
And then kind of secondly, on that Asian consumers, I guess you could say have a higher propensity to invest their personal wealth in precious metals in the western consumers on. So do you kind of see like you said, maybe expanding into Singapore, but I'm just further growth opportunities there?

Gregory Roberts

So as the prepared remarks illustrated on LPM has operated over the last 10 years with a book with a balance sheet that it has probably has more likely than not restricted a little bit that the amount of inventory and precious metals that they're able to buy and hold. I think that one of the great you could call it a synergy or you can call it an opportunity is that it gives LPM the opportunity to work out of A-Mark's inventory. So as we take these opportunities to buy new inventory at favorable premiums or prices, we will start to take into consideration what LPM believes they can sell.
And when we talk about larger purchases in the marketplace, the more you buy, the cheaper, the price so as LPM can identify products, they can sell and take advantage of A-Mark's balance sheet to help purchase more and hopefully get a get a discount that will be a synergy that LPM will be able to take advantage of. It will also be helpful for our own wholesale and retail business in North America that if we can get a bigger price and LPM helps us sell through 30%, 40% of what we're buying. It's going to make A-Mark stronger and have better negotiating power. When we look to buy products if that makes sense and answers your question.

Andrew Scutt

No, that was perfect. Thank you very much. And then just one more follow-up. So in the last 12 months, you guys acquired a handful of additional businesses now entered a few new geographies. While the minutes on minutes have been running at near at or at full capacity, I know there's kind of oversupply in the market right now, but maybe over the medium term, could you share any thoughts around I mean, capacity expansion?

Gregory Roberts

I mean, at the moment, we're not looking too much for expansion. We're comfortably at the moment managing the production out of out of the SilverTowne Mint. We have been fortunate enough that the SilverTowne Mint does a great job at it pivoting and being very nimble when it comes to what they produce. So whether it's one ounce rounds or 100 ounce bars or specialty products, whatever it is, we're able to keep them busy with with altering or adjusting what product they're making every week.
So this is just a balance and production discussion that we go through once or twice a week on what what we want them to manufacture at the moment, I don't I don't see a situation where we need to grow have the production ounce numbers at either sun shine or SilverTowne. But as the premiums tend to contract, there is a fixed cost to manufacturing this product. And I do believe that we could see opportunity if we get a prolonged lower premium environment, we could find a situation where a smaller movement just can't make money at the at the prices that we can produce at. And that may give us an opportunity to acquire some equipment or to do an M&A type activity as it relates to maintain. And I think there will be opportunities down the road, but nothing that we're focused on at the moment.

Andrew Scutt

Great. Thank you very much for the detail. And last very quick one for me on you've been mentioning at being opportunistic in acquiring inventory. Do you guys just kind of with a potentially volatile election year coming up, do you guys have an optimal inventory level in mind? Are you guys thinking of that as you're acquiring additional inventory.a

Gregory Roberts

Certainly, we feel here at A-Mark management that there are a number of events in the future and a number of them situations that will be favorable to A-Mark. We do we're trying not to predict the future, but we do see a number of situations that seem to be lining up that historically have shifted the supply and demand equation for us in our products. And I think that personally and I don't want to speak for everybody, but personally, I do feel there are a number of things.
The election, the continuing bank situation, the commercial real estate issues, what is really going to happen to interest rates and inflation. So I do see a lot of it's just kind of what I would say yellow lights that are that are that are flashing. I think our job as to balance. And as I mentioned earlier, we're looking at the balance and the mix of our inventory right now. And we want to make sure that as we increase inventory and as we look towards the future, we want to make sure we have the inventory that gives us the greatest potential if an event occurs.
So we are constantly consciously looking two, the mix of inventory, repositioning, inventory, selling inventory that we don't think currently has potential in acquiring new inventory that will give us that opportunity. In conjunction with that, you may see our inventories rise over the next six months and you will most likely see our carry costs rise a little bit as we look to position ourselves like we have in the past to make to hopefully be in a position if the supply and demand equation changes that we have, the product that everybody wants.
That's how we do the best when we're well positioned and how product because product production manufacture, financing of inventory and being able to do that and pivot quickly in our business, you just can't you just can't do that overnight. So we are investing in ourselves. We're investing in all the different areas that I've talked about, but we are currently looking to invest in them the right inventory that will make us the most money when we sell it.

Operator

Greg Gibas, Northland Securities.

Greg Gibas

Correct or Kathleen Thanks for taking the questions and congrats on the transactions. Bob, I wanted to first ask you how the LTMs margins maybe compare A-Mark's, should we think of them as relatively comparable yes, I think it's a mix.

Gregory Roberts

It is a mix between retail and wholesale. And I think you should look at it as a mix and that I think the product mix of what they sell is a little bit skewed more towards licensed specialty products that do carry a little higher margin even at a wholesale level. It's important to note that all of our DTC. brands, whether it be JM Bullion or silver, gold bull or Pinehurst are customers of LPM. So LPM through their licensing and their exclusive products, our sellers have products that we have historically needed. Now we have had to share those products with other retailers.
So I would I think it's fair to say that we haven't historically got as much of LPMs wholesale sales of product than we would like. So we see that as an opportunity to expand and be a great distributor for LPM on their specialty products. I think that their margins should skew a little bit higher than then A-Mark wholesale, but probably not as high as our as our DTC businesses.

Greg Gibas

So makes sense. And just as we think about modeling it hard to say where things move, what have you seen just as we think about fiscal Q3 so far, have you seen similar spreads relative to fiscal Q2?

Gregory Roberts

Yes. I think that in some areas, I would say January and February, we saw some slight strength. I think right now we're seeing a little bit of strength in the Silver Eagle market, which generally does bode well for our private Mint product or our other sovereign mint products. And I and I do feel at the moment a little a little more demand and a little less supply on the Silver Eagle market. So I would say that's probably the plus side of things as it relates to 1 ounce, 5 ounce, 10 ounce private label product. I think that we're seeing we're seeing similar premiums as what we saw in the in Q2. Some products a little bit lower, some problems, products a little bit higher, but we're trying our best to inventory is as broad a mix of products as we can so that we're able to fill any orders when they come in.

Operator

Brandon Coffin, Praetorian Capital.

Brandon Coffin

I guess we're just curious if maybe you could help us understand A-Mark's relationship with big box retailers like Costco and Walmart and specifically where a market kind of fits into that ecosystem and, if you could help us just by clarifying which specific business segments are earning revenue from those two entities?

Gregory Roberts

Yeah, great question, Walmart has been selling into the market for a long time. We indirectly supply them. We have not seen the growth in Walmart that is material to A-Mark, but they have been there for a while. So that big box comment is not really anything new for us. I think everybody is very interested in Costco. Costco has been in the news what Costco is doing at the moment, I think that A-Mark is very well positioned for this. I would I will say that are our partners at silver gold bull in Calgary are currently supplying Costco. They are selling products in the Costco stores.
Silver Global has a presence on the floor of Costcos in Canada and as well as handling some of their logistics and some of their order fulfillment. So we are definitely, you know, in tune SilverBow specifically at the moment, is working in Canada and we can we are continuing to look for opportunities where A-Mark or silver global can participate in any domestic needs that Costco may have in general, I think Costco's entry into precious the precious metals market has the potential to expand the overall market as a trusted retailer, Costco could introduce new investors to the benefits of owning precious metals, thereby contributing to the growth of a growth of our overall industry.
So I believe that is a positive. I think that Costco's widespread presence and accessibility can just make precious metals more convenient for a broader demographic. And I think the move allows consumers to explore and purchase precious metals during their routine shopping experience. And I've heard different numbers, but I think Costco has over 140 million members across North America and Canada. And so obviously, we see this as a large opportunity to bring new customers into a marketplace that we have been excited about for a long time. I think that any time that you see a new demographic or a new group of people in our marketplace.
It does give a mark and our DTC an opportunity to you know, take advantage of that to this point on what we've seen is Costco is limiting the amount of ounces that a customer can buy on. They seem to be using this currently as a way to to increase membership in their different membership programs. And I think it's that's good for us talking to the guys at Silver global and from there their reports of actually having some pop-up stores in Canada.
And to this point, they've been very optimistic and they're very positive about their interactions with the Costco customers and the customers' interest in learning more about precious metals. So I think this is very good for us. I think it really creates a terrific opportunity for for A-Mark's DTC. segment and their companies in that if a customer is limited in buying five ounces of gold from Costco or one ounce of gold at a time from Costco, if the customer is educated and wants to buy more. We hope very much that they'll find their way to one of our DTC. brands. So that's how we see it as an opportunity for A-Mark.

Brandon Coffin

And then just to a follow-up, where exactly do you see those potential future opportunities coming first, would that be or maybe just the wholesale arm or something with the menswear cost us potentially buying and selling SilverTowne and Sunshine Products.

Gregory Roberts

And I think that Costco in Canada has already started to sell Sunshine Products. So I hope that answers that question. And I think that we view Costco if it continues and it's long term, I think we will be able to service them across a number of our platforms in our businesses, whether it be private Mint products, whether it be wholesale, whether it be storage and logistics, we we're ready to accept the challenge if Costco wants it once our involvement and we think we're well positioned for that.

Operator

Sy Jacobs, Jacobs Asset Management.

Sy Jacobs

So I wanted to drill down on the sort of LPM accretion calculation. So this past quarter, which was a slow quarter you have a market as it stands at about a 1.2% EBITDA margin. It's been as high as I think, triple that in previous quarters, given what you said earlier about the mix of retail to wholesale being somewhat similar to A-Mark's, is it fair or conservative or aggressive to apply that range of EBITDA margins in good and bad and environments to the $400 million of revenue average revenue you're acquiring from LPM? And then I've got two follow-ons to that.

Gregory Roberts

Yes, as you can tell from our performance, it's a little bit of a moving target. Lpm was significantly had had had better margins in '21 and '22 than they had in '23. So as we looked at the opportunity. And as we looked at the acquisition and the price that we ended up paying, we think that are our cash and stock down at $41 million was it was a very fair entry point for us with $11.5 million of tangible net worth. And if we did negotiate and we put a little bit of any further payout on this transaction that it's pay-per-performance. So we were we were very in tune with giving the sellers an opportunity that if the market turns or if things get better that they would participate with us.
And at each time we worked on the structure and changed the structure and negotiated the structure we were of the of the position that if we pay out the all of the earnout numbers and the performance needed for all of those earnout numbers, we would be very happy to pay it out it would validate the purchase and what it would be would be very good, a very good acquisition for us. So I think that part of the challenge in in looking at this transaction. And I know it's what you're thinking and what you're focused on is how do we look at what's normal and what's what's what can we expect? And it if it comes a little bit with market conditions.
But I think our belief is that we can pull on ad revenue as well as hopefully expand their margin a little bit. But for the for the most part, I think this is a business that is going to have a closer to probably 2% EBITDA margins. So maybe a little bit higher than that as you as you're trying to compare them. So I do think the margins are a little bit higher than A-Mark wholesale, let's say. And if we can expand their retail and we can we can grow the retail. I don't see any reason why we couldn't that those incrementally increased revenue dollars at the DTC level wouldn't be more in line or will be more in line with what our current DTC margins are.

Sy Jacobs

So one little follow-up question on that. You talked about sort of revenue synergies, getting more wallet share and mind share there purchases for A-Mark wholesale. Is there an opportunity for SilverTowne and Sunshine to become suppliers out of I don't know how much how many SilverTowne bars they sell in Hong Kong, but might that become like a part of their menu whereas it wasn't before?

Gregory Roberts

Yes. I mean that's that's a great synergy because as we know every week, we have plenty of SilverTowne product on the shelf and we have both wholesale and retail customers buying out of that inventory. It doesn't cost us anymore to introduce LPM customers to that inventory?
No. Now we will we will have to we've already started on the process of logistics, and we will have to stage product a little bit more in in Hong Kong, and we've been already doing that with Brink's in Hong Kong and as well as I think it's important to note that we entered into a supplier agreement with AMSI. box around two months ago. And as part of the negotiations and part of the test, we've had a supplier agreement with AMS. and LPM. specifically. And we have already started from out of our Vegas facility. We've started to ship product for LPM to their customers as well as we've started to finance some of their inventory in Hong Kong. So we've been operational with them for the last two months. So we've been able to get a really good idea of what it takes and where we can improve LPMs profitability. So we have actually been working on that.

Sy Jacobs

Okay. And then last question on the transaction and in general you're paying almost all cash for this is the is the cost of capital missing out on 5% money market on $40 million? Or are there sort of like as you said you're not borrowing any money to do it? Are there any other sort of costs that you need to subtract from the 2% or more margin and also vis-a-vis the buyback and how it relates to this you spent and then something less than 50% of your cash flow this quarter and buying back your stock does making this acquisition $40 million and make it any harder to return capital at that pace going forward?

Gregory Roberts

Well, I think there's a little bit of unknown in that question. I am super enthusiastic about this acquisition. I did. And I didn't do this to not make 5% our money market. I think this business has the opportunity to really change and to really add to what A-Mark is doing in a market that we're currently getting a very tiny fraction of the market share. So I I know what this business has made historically, I know what it made in good times. I know what it what that revenue and that profitability is worth to us. And I think that if LPM was owned by A-Mark in 2021 or 2022 or even 2023, they would have made significantly more money than they did on their own. So I'm looking at this as a home run. I'm not looking at it as a bunt singles.

Sy Jacobs

And then the buyback part of the question, does it impinge your ability to buyback at this pace?

Gregory Roberts

No. I think that the management and the A-Mark board, we spent quite a bit of time on making sure this was the right sized deal and that would afford us the opportunity to continue to balance all of these things, whether it be dividend or whether it be stock buyback or whether it be on other acquisitions in the future.
I think this deal at this moment was sized very well. And you know, it wasn't that long ago that we made $50 million EBITDA in a quarter or so as it relates to other opportunities. I think we're very well positioned, very well positioned to keep doing everything when the opportunity presents itself. And if we feel that the price of the stock is attractive for a buyback. We're going to continue to buyback the stock. Obviously, we have announced here that we bought back 400,000 shares in the quarter, that's a pretty big buyback against a [23 million] share outstanding. So I think I'm pretty excited about continuing to do everything well.

Operator

Thank you. That does conclude our question-and-answer session. I'd now like to turn the call back over to Mr. Roberts for his closing remarks.

Gregory Roberts

Thank you, Paul. Once again, thanks to all of our shareholders who joined the call today as well as the shareholders that aren't on the call that will listen to it later recorded. I want to thank our employees for their dedication and commitment to our success and look forward to keeping you apprised of A-Mark's progress in the future. Thank you for joining.

Operator

Before we conclude today's call, I would like to provide A-Mark's safe harbor statement that includes important cautions regarding forward-looking statements made during this call. During today's call, there were forward-looking statements made regarding future events, statements that relate to A-Mark's future plans, objectives, expectations, performance, events and the like are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the Securities Exchange Act of 1934. These include statements regarding expectations with respect to the dividend declarations, the amount or timing of any future dividends, future macroeconomic conditions and demand for precious metals products. The Company's ability to effectively respond to changing economic conditions.
Future events, risks and uncertainties individually are in the aggregate could cause actual results to differ materially from those expressed or implied in these slides. These include the following with respect to the proposed transactions with AMS Holding failure of the parties to agree on definitive transaction failure of the parties to complete the contemplated transactions within the currently expected timeline or at all failure to obtain necessary third-party consents or approvals and greater than anticipated costs incurred to consummate the transition.
Other factors that could cause actual results to differ include the failure to execute the company's growth strategy, including the inability to identify suitable or available acquisition or investment opportunities greater than anticipated costs incurred to execute the strategy changes in the current international political climate, which historically has favorably contributed to demand and volatility in the precious metals potential adverse effects of the current problems in the national and global supply, increased competition for the company's higher-margin services, which could depress price failure of the Company's business model to respond to changes in the market environment.
As anticipated changes in customer and consumer demand and preferences for precious metal products generally potential negative effects that inflationary pressure may have on our the inability of the company to expand capacity at server failure of our investee companies to maintain or address the preferences of their customer bases, general risks of doing business in the commodity markets in the strategic business, economic financial political and governmental risks and other risk factors described the Company's public filings with the Securities and Exchange. The Company undertakes no obligation to publicly update or revise any forward-looking steps. Listeners are cautioned not to place undue reliance on these forward-looking state.
Finally, I would like to remind everyone that a recording of today's call will be available for replay via a link in the Investors section of the company's website.
Thank you for joining us today for A-Mark's Earnings Call. You may know.