A-Mark Precious Metals - Earnings Call - Q2 2017
February 7, 2017
Transcript
Speaker 0
Good afternoon, and welcome to the A Mark Precious Metals Conference Call for the Fiscal Second Quarter Ended December 3136. My name is Matt, and I'll be your operator this afternoon. Earlier today, A Mark issued its results for the fiscal second quarter and first six months of twenty seventeen 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 bottom of the homepage. Joining us on today's call are A Mark's CEO, Greg Roberts President, Thor Jerusalem and CFO, Carey Dixon.
Following with the remarks, we'll open the call to your questions. Then before we conclude today's call, I'll provide the necessary cautions regarding the forward looking statements made by the management during this call. I'd 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 the company's website. Now I'd like to turn the call over to A Mark's CEO, Mr. Greg Roberts.
Sir, please go ahead.
Speaker 1
Thank you, Matt, and welcome, everyone. Thank you for joining us this afternoon. As you can see from today's earnings release, our financial results for the fiscal second quarter were strong. We were able to achieve these encouraging results despite operating under moderate market conditions in the precious metal space. While these conditions were consistent with the prior quarter, we were able to deliver double digit sequential and year over year growth in nearly every key metric, including revenue, gross profit, net income and gold ounces sold, all of which partially offset weaker demand for silver products.
On top of this, our trading ticket volumes more than doubled in the quarter, driven by the fact that more of our customers are now taking advantage of our online trading portal. Altogether, our financial performance in Q2 reaffirms the advantages of our increasingly diversified business model, which provides us with multiple revenue streams while operating offering opportunities for significantly higher gross profit in market environments with increased volatility and demand. Now before I continue, I would like our CFO, Kerry Dickson, to walk us through the financial details for the quarter ended December 31. Kerry, take it away.
Speaker 2
Thank you, Greg, and good afternoon, everyone. Turning to our financial results for the fiscal second quarter and six months ended December 3136. Our revenues increased 18% to $2,130,000,000 from $1,810,000,000 in the prior quarter and increased 39% from $1,530,000,000 in the same year ago quarter. The year over year increase in revenue was mainly due to an increase in the total amount of gold ounces sold and an increase in precious metal prices and higher forward sales, which was partially offset by a decrease in silver ounces sold. The higher demand for gold was driven in part by higher sales of industrial products.
For the six months of fiscal 'seventeen, our revenues increased 11% to $3,930,000,000 from $3,540,000,000 in the same period last year. The increase was primarily due to an increase in precious metal prices and higher forward sales, partially offset by a decrease in the total amount of gold ounces and silver ounces sold. Our gross profit for fiscal Q2 increased 22% to $9,900,000 or 0.46 of revenue from $8,100,000 or 0.45% of revenue in the prior quarter. On a year over year basis, gross profit increased 74% from $5,700,000 or 0.37% of revenue compared to fiscal Q2 of last year. The increase in gross margin was primarily due to an improvement in trading profits.
For the six months of the fiscal year, our gross profit decreased 11% to $17,900,000 or 0.46% of revenue from $20,100,000 or 0.57% of revenue in the same year ago period. The decrease in gross margin was primarily due to lower premium spreads in our primary products compared to the same year ago period when we experienced atypical volatility constraints, particularly during Q1 twenty sixteen. Now turning to our expenses. Our selling, general and administrative expenses for fiscal Q2 of twenty seventeen increased 8% to $6,100,000 from $5,700,000 in the prior quarter. On a year over year basis, our SG and A increased 35% from $4,500,000 in Q2 of last year.
The increase for both periods was primarily due to higher consulting expenses related to the development and implementation of a new enterprise resource system, compensation costs, costs related to SilverTown's minting operations, which we acquired in the first quarter of fiscal 'seventeen, as well as other nonrecurring costs. For the six months of the year, our SG and A increased 8% to $11,800,000 from $10,900,000 in the same period last year. The increase was due to higher consulting expenses related to the development and implementation of our new enterprise resource system, costs related to SilverTown's minting operations and other non recurring costs. The increase in SG and A was partially offset by lower compensation costs, primarily due to lower performance based compensation accruals. Our interest income for Q2 increased 3% to $3,000,000 from $2,900,000 in the prior quarter and increased 36% from $2,200,000 in the same year ago quarter.
The year over year increase was driven primarily by an increase in the size of the company's loan portfolio as well as increased utilization of the company's inventory finance products by its wholesale customers. For the six months of fiscal 'seventeen, our interest income increased 41% to $5,800,000 from $4,100,000 in the same year ago period. The increase was primarily due to an increase in size of our loan portfolio as well as improvement in certain finance products. Our interest expense for fiscal Q2 of twenty seventeen increased 9% to $2,400,000 from $2,200,000 in the prior quarter and increased 85% from $1,300,000 in the same quarter last year. The year over year increase is primarily due to a greater usage of our line of credit and other product financing arrangements arising from continued growth in the business.
The increase was also due in part to higher LIBOR interest rates that went into effect subsequent to the Federal Reserve rate increases. For the six months of fiscal twenty seventeen, interest expense increased 83% to $4,700,000 from $2,600,000 in the same year ago quarter. The increase was due to the same reasons I just mentioned for the second quarter. Our net income for fiscal Q2 of twenty seventeen increased 41% to $2,800,000 or $0.39 per diluted share from $2,000,000 or $0.27 per diluted share in the prior quarter. On a year over year basis, our net income increased 98% from $1,400,000 or $0.20 per diluted share in fiscal Q last year.
The increase in net income was primarily due to higher revenue and gross profits, partially offset by higher expenses. For the six months of fiscal twenty seventeen, our net income decreased 33% to $4,700,000 or $0.66 per diluted share from $7,000,000 or $0.99 per diluted share in the same period last year. The decrease is primarily due to lower gross profit, higher interest expense and higher selling, general and administrative expenses offset by higher interest income. Now turning to the balance sheet. At quarter end, we had $13,300,000 of cash on our balance sheet.
As you evaluate our balance sheet, it's important to keep in mind that we are a net borrower and we typically pay down our balances daily to minimize interest expense. Our tangible net worth totaled $57,900,000 or 1 or $8.14 per diluted share, which compares to $55,300,000 or $7.77 per diluted share at the end of the prior quarter. And finally, last week our Board of Directors declared a regular quarterly cash dividend of $08 per share. This represents a 14% increase from the previous quarterly dividend of $07 per share, reflecting our Board's continued confidence in our balance sheet and commitment to maximize shareholder value. The cash dividend will be paid on or about February 24 to all stockholders of record as of tomorrow, February 8.
This completes my financial summary. Now I will turn the call over to Thor, who will provide an update on market conditions and key performance metrics. Thor?
Speaker 3
Thanks, Karen. As we've talked about before, we track four key metrics to assess the performance of our business. These key performance indicators or KPIs include the number of gold and silver ounces sold, trading ticket volume, inventory turnover, as well as the size of our finance book. The metric we evaluate is the number of gold and silver ounces sold. This metric is important as it reflects the volume of business that we are doing without regard to changes in commodity pricing, which figure into revenue and can mask actual business trends.
In the second quarter, we sold 772,000 ounces of gold, which is up 46% from the prior quarter and 10% compared to Q2 of last year. The sequential and year over year increase was driven by higher demand for gold, primarily from our industrial customers. For the six months of the year, we sold 1,300,000 ounces of gold, which was down 18% compared to the same period last year. The decrease was primarily due to the atypical volatility and supply constraints experienced in fiscal Q1 of last year. During fiscal Q2, we sold 22,800,000 ounces of silver, which was up 5% from the prior quarter, but down 31% from Q2 of last year.
For the 62017, our silver ounces sold decreased 39% to 44,600,000 ounces compared to the same period last year. The decrease for both the quarterly and six month period was primarily due to the unusually high demand for physical silver products in the first half of last year. The key metric we track, an equally significant measure of our business volume that is unaffected by changes in commodity prices, is trading ticket volume. This metric tracks the total number of orders processed by our trading desk in Santa Monica and Vienna, Austria. And as a reminder for those newer to our story, in periods of high volatility, there's generally increased trading in commodity markets and increased demand for our products, which translates into higher business volume.
During Q2, our trading ticket volume was up 60% to a record 35,198 tickets from the prior quarter and up 109% from Q2 of last year. For the first half of twenty seventeen, our trading ticket volume increased 25% to a record 57,229 tickets compared to the same period in fiscal twenty sixteen. The increase in our trading ticket volume for both the quarterly and six month period was primarily driven by higher utilization of our online trading portal by our customers. It is important to note, the portal allows smaller minimum order sizes, which has driven a portion of this increase. The key metric we evaluate is inventory turn, which we define as the cost of sales during the period divided by the average inventory during the period.
As many of you know, inventory turnover is a measure of how quickly inventory has moved. We typically experience a higher inventory turn ratio during periods of higher volatility when trading is more robust, reflecting a more efficient use of our capital. For Q2, our inventory turnover ratio was 7.2, which is up 9% from 6.6 in the prior quarter and up 16% from 6.2 in Q2 of last year. The improvement was primarily due to higher volume of activity in our industrial gold products. For the first half of fiscal twenty seventeen, our inventory turnover was 14.6%, which was down 10% from 16.3% in the first half of last year.
The year over year decrease in our inventory turnover ratio was due to a higher volume of activity in our finance product arrangements, a higher portion of our materials procured from foreign sources and longer carrying periods associated with our higher margin custom products. Also, the higher demand and increased market activity we experienced in the first half of last year produced an exceptionally strong inventory turnover ratio in the comparable period. And finally, the key metric we measure is the size of our lending business, which is determined using the number of secured loans we have at the end of the quarter. The number of loans we secured at the end of the quarter was up 2% to a record sixteen ninety eight from the end of the prior quarter and was up 153% from the end of Q2 last year. This significant year over year improvement in the number of secured loans was primarily due to the acquisition of bullion based loan portfolios.
That concludes my prepared remarks. I'll now turn it back over to Greg to talk about the progress we've been making on our key operational initiatives as well as our outlook for the remainder of fiscal twenty seventeen. Greg?
Speaker 0
I'm sorry, hang on just one moment. We're getting Craig back on the line. We apologize for the technical issue. We will have them back on the line in just one moment. And once again, we thank you for your patience.
We just had a technical issue. We'll be back up and running in just one moment. Thank you for your patience. We have Ben back through.
Speaker 1
Sorry, everybody. Thanks, Thor. The underlying factor in our continuing ability to grow our top line, expand margins and generate profits irrespective of the conditions in the precious metals market is our diversified business model. As many of you know, our legacy business in physical precious metals trading and distribution, which can be episodic in nature as volatility demand can significantly influence both positively and negatively our financial results. However, this business has provided us with a solid foundation to diversify and expand A Mark into other complementary products and services, like logistics, storage and most recently minting.
These areas provide us with additional and more predictable revenue streams and visibility. This diversification was particularly evident in the first half of this year. We were able to generate solid financial results despite the relatively tame market conditions we continue to experience. A key strategic objective for the management team and myself this year was to further diversify our business and expand our capacity. One major initiative in this area is our investment in the Silvertown Mint, a leading producer of fabricated silver products, which we completed in August 2016.
As we expected, the Mint has been consistently producing in excess of 1,000,000 ounces of silver per month in fabricated products, which we then sell to A Mark's customer base. In fact, since we commenced operations at the September, SilverTown has produced nearly 5,000,000 ounces of fabricated silver products in various shapes and sizes. This allows us to meet unforeseen surges in silver demand during volatile market environments. In addition to increasing our capacity and distribution, we are leveraging the Mint's long standing fabrication capabilities. Silvertown has an extensive coin die portfolio that is helping us to expand our higher margin custom coin products, including introducing new custom products for individual customers as well as striking sovereign mint products.
We plan to fabricate two new silver products this quarter at SilverTowne Mint, including an innovative stacker pack. We are also focused on other initiatives to drive incremental growth and profitability at the Mint, including promoting consignment offerings and build to order silver products. Our platform of custom coin programs continues to be an increasingly meaningful contributor to our core business and margin enhancement. These products typically carry higher margins and are sought after by many customers because of their unique and highly differentiated nature. In fact, during the first half of twenty seventeen, we sold more ounces of our custom gold products than ever before.
The success of our custom coin programs is the reason we continue to expand this growing part of our business. Another key objective this year is to expand our suite of ancillary services at our Las Vegas logistics facility. During Q2, we continued to benefit from the operational and cost efficiencies the facility provides us. In fact, the quarter marked the facility's strongest period since we opened in July 2015, both in terms of financial performance as well as volume of business. A primary focus of ours continues to be securing additional customers for our new storage programs, which includes custody services for precious metals investment options for self directed IRA accounts.
Looking ahead, we have continued to experience slower physical market activity in our current quarter, both in terms of demand and volatility. The results of the recent presidential election initially created elevated activity levels, but this surge has since slowed as more capital began flowing into the equities market. We expect the current market environment and trends to continue for the near term, though increases in federal interest rates should have a positive effect on our business that could potentially offset some of the slowing activity. Nevertheless, as we navigate this more subdued market, we continue to focus on growing and improving our platform of high margin and turnkey solutions. In the more immediate future, we will rely on our diversified business model to generate predictable streams of revenues and profits and to be ready to capitalize on trading opportunities and favorable market conditions whenever they may arise.
Now with that, we're ready to open the call for your questions. Operator, please provide the appropriate instructions.
Speaker 0
Thank you. At this time, we'll be conducting a question and answer question comes from Greg Ising from Singular Research. Please go ahead.
Speaker 4
Thanks. Good afternoon. Could you share with us what the average spot gold and spot silver prices were that you saw in the quarter compared to last quarter?
Speaker 1
Yes, let us pull that up. In the most recent quarter, we had an average price of gold of $1,157.38 and silver of $18.14 The previous quarter, 1,152.34 versus $20.01 on silver.
Speaker 4
Regarding the SG and A line, you pointed out some of the expense items which were non recurring. Could you describe how much of the SG and A increase was actually recurring, kind of increased in permanent overhead?
Speaker 1
Yes, here Kerry will help answer that question.
Speaker 2
Yeah, I think we look at for Q2 month to month and also year to date. I think the best one to look at is the year to date. Did look at a couple of investment opportunities last year, one of which was SilverTown, which we actually acquired. And the biggest non recurring cost is the cost of the consulting fees we had on both of those projects, which is about $815,000
Speaker 4
That's $8.15 for the six months?
Speaker 2
6 months, yep.
Speaker 4
System. Right.
Speaker 2
And and Understood. And the the other the other one is the the other cost we have, which is a semi recurring but potentially nonrecurring cost is the ERP system that we have in place, which we're continuing to develop and finalize and try to get in place by the our fiscal year coming up. Okay. For the six months, that was up about $400,000.
Speaker 4
And
Speaker 2
I think the other one I'll add to that is, which is going to be a new expense that wasn't there in the past that's going to be a recurring expense is really just the SG and A related to our SilverTowne operations that we just acquired and that is part of our SG and A line but it's an expense that we're always getting generating revenues from that and that's offsetting the expense. But it is part of our a new part of our SG and A line.
Speaker 4
Understood. Understood. Okay. Regarding your gross profit line, gross profit was up because of an improved trading profit. Could you talk about how much of that was what was the involvement of, I guess, your value added products?
We've talked about those in prior quarters, the increased emphasis on your value added products. Was that a component of the increase in gross profit and gross profit margin? And should we see that continuing to grow?
Speaker 1
Yes.
Speaker 3
I believe you're referring to the custom programs. The custom programs continue to contribute to earnings and incrementally were up, and it was about flat year over year. We do expect those to continue to contribute. We noted the subdued market conditions as the those are a little bit less affected but are affected by those conditions as well. But we do expect those to continue to contribute as well.
The other thing I would point out is that you may have noted our gold volumes rose and we mentioned industrial. The industrial business is contributing some margin to us as well. There's been more demand for larger VAR products. And although that tends to be a lower gross margin percentage, it's driving some volumes and gross profit as well.
Speaker 4
Understood, understood. Could you please repeat the number of inventory turns that you mentioned earlier on the call? I didn't get that down.
Speaker 1
Yes, one moment. Inventory
Speaker 3
turns were 7.2 for the quarter versus 6.2 in the prior year.
Speaker 4
Got it. Got it. Okay. I'll let someone else go. Thank you.
Speaker 0
And we do have another question from Rick Fearon from Accretive Capital Partners. Please go ahead.
Speaker 5
Hey, gentlemen. Hey, Greg. How are you?
Speaker 1
I'm great, Rick. Thanks for checking in on our call.
Speaker 5
Well, thanks for making money for us, and it's a nice quarter. I just have a couple of quick questions. One, as it relates to the new facility, what would you where would you peg capacity right now? And how much room for growth do we have?
Speaker 1
On the Silvertown facility? Yes. Yeah. Because we have Silvertown and we have Las Vegas, but but I I I sense that you were asking about Silvertown since it's
Speaker 5
I was, but actually, if you could cover both, would be that would be perfect.
Speaker 1
Sure. Sure. So Silvertown's capacity is governed a little bit by the machinery we have as well as hours in the day whereas Vegas can be governed a little bit by total dollar volume. So they're a little bit different. But in more specific terms, we're currently producing about a million ounces a month at the SilverTowne facility.
Now that will be a combination of one ounce rounds and bars, five ounce bars and rounds and 10 ounce bars as well as we do make some 100 ounce bars at SilverTowne. So the mix of the product will affect how much we can make. But in general terms, we believe we have capacity with our current configuration and depending on the mix a little bit, we can get up to about 25,000,000 ounces a year or about 2,000,000 ounces a month. So we have about double what we're currently making. We have available in excess capacity right now that we're looking to fill as well as keep a cushion of capacity that we would utilize in a kind of an emergency situation or in a situation where there was a big move in metals and it caused a spike in demand, let's say in a twenty four or forty eight hour period.
We're also we've built up a little bit of inventory that we have available that we're kind of we have in reserve for wind demand and premiums were to expand. So all in all, I would say we can get up to producing 2,000,000 to 2,200,000 ounces a month as well as A Mark would have the ability to sell that as well as Vegas would have the ability to handle the logistics of it. And it's a kind of a three pronged component. You have our trading desk, the logistics facility as well as the Mint producing. And most of that capacity, excess capacity at the Mint comes from adding extra shifts and working on weekends.
Speaker 5
Okay. It's that spike that you're referring to, Greg, where you see these extraordinary spreads widening where you're making literally dollars per ounce?
Speaker 1
Instead of cents per ounce. Instead of cents. Correct.
Speaker 5
Right. So always having that cushion is is is key. I mean, if you're operating around 2,000,000 per month, you really wouldn't have the luxury to kinda seize upon those opportunities.
Speaker 1
Yeah. I I mean, I I think that if you go back and I mean, you followed us from the beginning. So I mean, big theme is we we wanna have optionality on volatility and optionality on capacity. And I think that's really what we're building here and what we're doing is making sure that if you follow us quarter to quarter,
Speaker 2
you know
Speaker 1
that these things can, these market factors can change overnight or within a week. So I think that we want to have excess capacity in all areas, whether it be shipping, storage, logistics, our credit lines, our access to capital, our access to finished product, our ability to make product that the marketplace is demanding very quickly. And all of those things, the quicker A Mark can move and be able to offer certain products at certain prices to our customers, we will beat our competition and we will take market share away from our competition. And this we've been pretty consistent and the Mint is just one more kind of spoke in the wheel that we need to make sure that when the opportunity is there, we're able to take advantage of it. The benefit of SilverTown has been things that we maybe didn't factor in originally when we purchased it is there were a number of customers that have been loyal SilverTowne customers for a long time that have continued to buy SilverTowne product through SilverTowne, the old SilverTowne being the customer of A Marks as well as we've picked up two new trading partners from the deal that had been long term traders at SilverTowne that now work for A Mark who bring new customers to A Mark and are exposing A Mark to new customers and just new opportunities for us.
As well as I mentioned earlier, we started last month producing a new product that has a face value on it. We have a licensing agreement with the island Of Niue and it is a sovereign product that has a face value that some of our customers have been demanding. And in a very, very short period of time, we've been able to get the quality at SilverTowne, what they're producing up to a new level that we're very excited about that should open up even more opportunities to do some party minting and even more specialty products for customers as they demand them, the demand for them increases and those products generally carry a little higher margin. So a lot of things we have going on at the Mint as well as we've been able to finance for customers and add old SilverTowne customers to our finance book, which we've turned them into finance customers. So there's a lot of things that are good things that are coming out of the SilverTowne acquisition.
And just to reiterate, I think I said it last probably not last quarter, but maybe recently, I've been we were at an investor conference. The seamless integration of SilverTowne and the exceptional performance of the new employees has really exceeded our expectation. We've consistently every week since the acquisition been able to get around any obstacles or over any speed bumps. And we've consistently put out 250,000 to 300,000 ounces a week, which has really been a pleasant surprise. Expected a little more transition issues than we've got.
So we're feeling very good about that acquisition.
Speaker 5
That's great. Yes, that smooth integration sets a great precedent for future acquisitions. I'm glad that it's gone so well, Greg. It sounds like some of those customers have translated into financing customers as well. And has that also spilled into the storage area or transportation?
Speaker 1
Yes. And we use Vegas as a hub for all of our logistics now. We've been able to integrate most everything that we had used parties for before. We have our insurance and banking capacities at the facility have grown so that we can integrate pretty much everything we do. The beauty of the facility is that we finance material for customers at the facility.
It's kind of the consolidating location for hundreds of products that we carry and sell and that our customers carry and sell. It's so the addition of SilverTowne having kind of a staging area for the product to go to where it is integrated with all of the other products that we offer logistics services for has been a real benefit so that you're not trying to ship products from multiple locations. It allows us to put 10 products in one package as opposed to three or four products in three packages. It's just we're getting some very good operational efficiencies at Vegas. We have introduced some IRA storage business there over the last two quarters and we think that increased storage will is one of our will be a real growth story down the road.
And so we're all the pieces are really working together right now.
Speaker 5
Right. And the last question with respect to capacity, the Vegas facility capacity is less than 50%?
Speaker 1
I would say it depends on specifically what product you're talking about there. What I mean is that the storage capacity might be at 20% right now, whereas the Pick n Pack and the packages might be at 50%. I will say that we shipped a record almost 58,000 packages in December out of the facility. And the quarter for us was a record quarter for actual small packages shipped by probably 10% to 15% over our previous record months. And we believe that we have the best staff we've had there yet and our per employee package productivity is at an all time high.
In fact, actual number was we shipped 160,000 parcels in Q2 of 'seventeen and that was up significantly from Q2 of 'sixteen. But I would say that if you're asking me what I think our parcel capacity is, if we did a 160,000 in in q two of seventeen, I think we could easily do 250,000, maybe 300,000 packages with with with what we have in place right now. So so we have, you know, a a a plenty of plenty of space to grow there. If, you know, if tomorrow morning we woke up and silver was at $13 an ounce, I'm sure we would do 350,000 packages in the next ninety days. So we can handle that.
We have the staff to do it. We have some flex staff. We have some the ability there to also add shifts. And we, you know, we utilize some part time help where we guarantee them certain amount of hours per week. And that and they in turn give us an option to take them more hours if we need them if we get a spike.
So we feel pretty good about what we could turn out of there if we needed to.
Speaker 5
And presumably the storage is really where you start leveraging because the additional storage comes with very little incremental cost?
Speaker 1
Yeah. I mean storage, although it doesn't pay a ton, but it also takes very management in that most storage metal comes in and it never leaves and it never moves. Just the nature of storage, particularly the IRA business and other storage. It pays us three sixty five days a year, doesn't take holidays or sick days. It's a great revenue stream for us.
We are focused on that. Of our initiatives over the next two quarters is to locate an actual sales manager for that facility that can get out and actually promote the capacity we have. We haven't really been comfortable with promoting that until we felt like we could be very comfortable in this capacity expansion. But we are looking to bring on a dedicated sales and marketing person specifically for that facility.
Speaker 5
That's great. I'll step off and step on again with another question just so others can ask questions. But really nice to see this coming together, Greg.
Speaker 1
Thanks for your long term support, Rick. We appreciate My pleasure.
Speaker 0
Our next question comes from Craig Peeringer from Wells Capital Management. Please go ahead.
Speaker 6
Good afternoon. Hey, you've been consistently profitable on an accounting basis, but it seems to me that cash flow, particularly free cash flow has been elusive. Can you talk about how your strategies of diversifying your income stream in logistics and storage, minting, etcetera, what are the cash flow implications, particularly the ability to generate positive free cash flow?
Speaker 3
It's interesting because people often struggle with our cash flows, and there's a couple reasons for that. Just starting at 30,000 feet, remember that this is very much a leveraged business, and we are a net borrower at all times. So in terms of free cash flow, every day we're looking at what our global cash requirements are, and we're paying down to mitigate our interest expense. Also, because of the volume that you see in our revenues, you can see advances and receivables and payables cause significant swings in our cash flows, to your point of elusive is a good word to use, where just simply the timing of advances and receivables, even though the tenors of our credits are literally twenty four hours, can cause our cash flows to swing. Prior to having the size of the loan book that we have today, used to tell people that you could effectively liquidate our business in forty eight hours at virtually no loss, meaning you could monetize our inventories very rapidly.
With the loans that we have today, that's not quite true anymore because you have these loans, some of which are demand centers. The longest center is six months, but still, again, very highly liquid. So when when you talk about generating free cash flows, I think the answer is that the way our business is structured, the way that we we have a leveraged access to capital that we're utilizing all of our resources on a daily basis. But we do have significant reserves in the form of additional availability under our lines, availability under our reverse repo facilities, for example, lease facilities, etcetera. Our cash flow is difficult to follow in terms of the trends of our business because of all those factors.
Speaker 1
One other thing to add, this is Greg. We also manage our cash flow very carefully through our loan books and through the loans we have. As Thor said, they're usually demand loans. We can affect our cash flow by not sourcing new loans. We can affect our cash flow if we need to by raising rates or which will cause us to have a little bit less demand on our cash.
But one thing great about our business is that we try to make sure that every dollar of capital is invested. And any excess capital or any excess cash that we have, we generally want to put that into our loan portfolios because the return on that is very good. So in areas, in times where we can predict where we're going to have cash flow coming or where we get some cash, we like to pay down our lines and put the excess cash into our loan products and not be borrowing for those loan products. So that's another lever that we have if need be that we can affect our cash flow.
Speaker 6
All All that's very illuminating. Thank you very much.
Speaker 0
Thank you. This does conclude the question and answer session. I'd like to turn the floor back over to Mr. Roberts for any closing comments.
Speaker 1
Thank you for joining us today. I especially want to thank our investors for their continued support as we continue to build A Mark into the global leader in precious metals trading. We look forward to updating you on our next call. Operator?
Speaker 0
Before we conclude today's call, I'd 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 are forward looking statements made regarding future events, statements that relate to A Mark's future plans, objectives, expectations, performance, events and the like forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the Securities Exchange Act of 1934. Future events, risks and uncertainties individually or in the aggregate could cause actual results to differ materially from those expressed or implied in these statements. Factors that could cause actual results to differ include the following: the failure to execute the company's core strategy as planned greater than anticipated costs incurred to execute the strategy changes in the current domestic and international political climate, which has favorably contributed to the demand and volatility in the precious metals markets increased competition for A Mark's higher margin services, which could depress pricing the failure for the company's business model to respond to changes in the market environment as anticipated general risks of doing business in the commodity markets and other business, economic, financial and governmental risks as described in the company's public filings with the Securities and Exchange Commission.
The words should, believe, estimate, expect, intend, anticipate, foresee, plan and similar expressions and variations thereof identify certain of such forward looking statements, which speak only as of the dates in which they were made. Additionally, any statements related to future improved performance and estimates of revenues and earnings per share are forward looking statements. The company undertakes no obligation to publicly update or revise any forward looking statements. Readers are cautioned to not place undue reliance on these forward looking statements. Finally, I'd to remind everyone that a recording of today's call will be available for replay via a link available in Investor Relations section of the company's website.
Thank you for joining us for today's A Mark's fiscal Q2 earnings call. You may now disconnect.