U.S. Global Investors, Inc.
Q3 2022 Earnings Call Transcript

Published: 10 May 2022

[Holly Schoenfeldt:]

Good morning, everyone. Thank you for joining us today for our webcast announcing U.S. Global Investors Results For Third Quarter Ended March 31, 2022. I'm Holly Schoenfeldt. As seen on Slide number 2, as you can see on Slide number 2, the presenters for today's program are Frank Holmes, U.S. Global Investors CEO and Chief Investment Officer; Lisa Callicotte, Chief Financial Officer; and myself, Holly Schoenfeldt, Director of Marketing. On Slide 3, as always, we would love to offer anyone to end today, one of our JETS, GOAU Archives and SEA JETS. In addition, we have Jet Luggage tags available. All you have to do is send us an e-mail with your physical mailing address to [e-mail]. Moving on to Slide number 4. During this webcast, we may make forward-looking statements about our relative business outlook. Any forward-looking statements and all other statements made during this webcast that don't pertain to historical facts are subject to risks and uncertainties that may materially affect actual results. Please refer to our press release and corresponding Form 10-Q filing for more detail on factors that could cause actual results to differ materially from any described today in forward-looking statements. Any such statements are made as of today, and U.S. Global accepts no obligation to update them in the future. Moving on to Slide number 5. I will briefly review our company. U.S. Global Investors is an innovative investment manager with vast experience in global markets and specialized sectors. It was originally founded as an investment club, becoming a registered investment adviser in 1968. The company has a long-standing history of global investing and launching first-of-their-kind investment products, including the first no-load gold fund. We are well known for expertise in gold and precious metals, natural resources, airlines, emerging markets and cryptocurrencies. Moving on to Slide number 6. I would like to hand the presentation over to Frank Holmes to review what we believe is one of our most helpful visuals when it comes to investing, not only in GROW but in any asset class. Frank?

[Frank Holmes:]

Thank you, Holly. The DNA of volatility is another way of looking at capital markets and risk and volatility are all intertwined. And this is a visual update statistically of looking at what 1-day volatility is 70% of the time. And for the S&P, it's 1%. So whenever it's up more than that or down like 3% in a day that mathematically odds favor for a bounce the next day. The other part is a 10-day volatility whenever it's plus or minus 3%. As you know notice that gold in the stock market are actually the same, which shocks a lot of people, whereas asset managers index, it's minus or plus 2% on a daily basis and 5% over 10 days. The airlines, which we have a huge asset class in our portfolio, New York -- listed on the New York Stock Exchange, our ETF JETS. But this is to compare to the Arca Airline Global Index, and it's nonevent for to go up or down 2% a day and 7% over a 10-day period. What influences this index the most is this the rotation in oil, and oil has a greater volatility on a daily basis 10-day and oil is the largest cost to the airlines industry. Bitcoin is plus or minus 3% is having a rough day. And we took the 10 day for it is plus or minus 11%. And Tesla is the same as bitcoin. Any there was even more volatile and GROW is basically as volatile as a Helium. When you look at over 1 day or over a 10-day period, it's because of our investments in high blockchain, in the gold space and also in the airlines and airlines representing the largest component of our overall assets today. What's driving GROW, growing assets under management? And is every day, you can download and get this information from Yahoo Finance or a Bloomberg in particular, and I'm going to walk you through how most people calculate with our potential operating revenue is going to be. And the goal is an inflation hedge because of our gold funds and the airline recovery because of our substantial investment in the airlines industry and having JETS ETF listen not only the New York Stock Exchange, but it is listed in Mexico City, it is also listed in Lima, Peru. -- which means institutions combined in these other jurisdictions. And it's also in partnership with high-end ETF in London, the just ETF was listed in the London Stock Exchange. And then the key investment in the crypto space has been high blockchain, which is exceedingly volatile, which has impacted our overall performance of our stock and sometimes creates a sort of more of an interest in what's happening with crypto than our underlying operating cash flow. But nevertheless, and more important is I really want to thank our top institutional shareholders. In particular, those at Royce funds have been long-term partners in our company. And paired capital management as a specialist firm in small micro-cap stocks and also alternative asset classes like gold. And then there's the Heartland funds. Also a small cap value specialist with a phenomenal track record. And then we have the BlackRock Institutional Trust and the Vanguard index. -- who they're basically having a good percentage, but the real, I'd say, the active investors here are Royce and Parrot and Heartland Advisors. And I want to thank all of you for anyone that's invested in U.S. Global. I myself own approximately 17% of the company. So when we look back, we've increased our dividends by 200% in 2021. The company has paid a monthly dividend since 2007. Current yield at a share price of $5.32 April 22 was 1.69%. Stock goes down, that dividend yield is rising. The monthly dividend payment is 0.0075. It's been approved through June of '22, is reviewed by the Board quarterly. The other thing that we've done is had a share repurchase program in motion. And on February 25 of this year, 2022, the Board of Directors of the company approved over an 80% increase to the limit of its annual share buyback program from $2.75 million to $5 million. And for the quarter ended March 31, 2022, the company repurchased 19,487 shares of its Class A shares using cash of approximately 97,000. And the Board made suspend or discontinue this at any time. But I think what's important for investors is Lisa will go on to later in the presentation, more granular detail on the stock buyback. And really, this number for the past quarter is predominantly when the new program was implemented in the month of March. Next, please. Is GROW as a ticker, $4.1 billion in assets as of the end of March and $6.2 million in quarterly operating revenue. The stock price had a heck of a run last year because of the investment in high blockchain and the whole crypto space when it ran at $12 and trained its whole flow. And okay Melonn must with negative concerns and crypto mining. And even though Hive has the strongest ESG footprint and green only energy, it tumbled down with all the other crypto mining stocks. And as Bitcoin as it shows you here, it's 60,000, Hive hits $7, grow went to $12. The quarterly average assets under management, and that's something I want to focus on this presentation today for shareholders. Even with Omicron coming along in the fears and the shutdowns and opening up again, and now we have China with another continued lockdown. The assets of JETS remain pretty stable, and there's lots of trading activity with the price of oil. The price of oil falls, then just goes up. The price of oil rises just goes down, people are shorting going long, tremendous tag traffic, trading because of its liquidity. And I think it's important because it also then attracts larger institutional investors. The big news this past quarter was taking -- was the removal of mass for flying domestic flights, and that had a big surge in fund flows into the JETS ETF. Now, something else that's in the financials that are filed is how mark-to-market of investments impacts non-realized earnings. This is in detail and Lisa can any time go into detail of people need it down the road. But it's basically showing you a 25% increase or a 25% decrease in the equity securities at fair value and the embedded derivatives of fair value, in particular, are the warrants that we own on high blockchain. Those warrants value beyond intrinsic value have to do with Black shows. So it has a bigger valuation and therefore, has a greater volatility to it in dollar terms. So what this is really to help you to understand is that each quarter, this mark-to-market of long-term investments, unrealized gains and losses do impact your quarter-over-quarter results and your annual results. This is just a hypothetical case study to show you what happens when it's 25%. And that we know could happen very quickly with capital markets, in particular, the asset classes, which we are known for. gold. It's nothing for it to go up or down 25% in a quarter, the airlines and also when it comes to the crypto space. Well, we're really happy that we got all our financials out, and we saw that building our cash and what our numbers were grow versus a small-cap asset managers, we far outperformed for the quarter. And I think that's just important for investors, and I'm going to walk you through some financial granularity. But we're thrilled that we've been able to sort of maintain our positioning and outperforming. And even with the meltdown in the past day, we still, on a relative basis, how far outperformed this year, the Russell 2000 that Dow Jones U.S. Asset Managers Index. So a, looking at the quarter -- this is actually the end of December. But when we look at those numbers and we'll get them updated for this quarter end as all the numbers come in. But you can see here that our P/E ratio is the lowest, and it is compared to Imbesco and WisdomTree, 40% of BESCO's assets are the QQQ and WisdomTree, which is predominantly is only ETFs, they have a higher PE ratio. And ours is 80%. So I would expect that we would have a bigger P/E ratio. And I think that, that's what's going to happen as we go through and continue to build cost in our balance sheet and launch new products. Now for investors to understand, I mentioned earlier, it's easy to take a look at our performance of our assets each day of fund flows coming in and out. And the total asset picture is easy to download, which fund managers, I know do. And if we have $100 million in assets and it's a 60 basis points is the expense ratio, then the adviser's revenue was $600,000 per $100 million. And as you can see, at $4 billion, it's $24 million in revenue, deduct your cost and you basically have what your free cash flow is. So our goal is to get back and actually surpass September of 2011, when our balance sheet was flushed with cash, it had $28 million in cash and cash equivalents. And you can see in March of 2020, and this excludes the investments we had in other companies such as Hive and Thunderbird, etcetera. But just as our cash and cash equivalents, -- at the bottom, basically, of the capital markets due to COVID, we had $2.1 million in cash. A year later, we had $9.5 million, and now we have $26 million in cash, which is great. And so -- but our goal is to get to $30 million. And then the Board can make decisions with the additional free cash flow to buy back more stock or to increase the dividend. So earnings; earnings come from 2 factors. Operational earnings, basically our cash flow, investment earnings are realized and unrealized. And that's the mark-to-market phenomena that we talked about earlier that you must be reporting to be in compliance with GAAP. And so when you add those together, you get earnings. So what's important for U.S. Global is that our operating earnings are very healthy, robust and strong, even with the big capital meltdown that took place in the first quarter of 2022. Our capital structure and our capital strategy is quite simple

[Lisa Callicotte:]

Thank you, Frank. Good morning, everyone. First, I'd like to start with just a couple of highlights on the next slide. Our average assets under management were $4.1 billion for March 31, 2022 quarter, and this was consistent with our prior quarter and slightly up from a year ago. Also, we had total operating revenues of $6.2 million and an operating margin of 41%. Now, I'll go into more details about our results of operations for the quarter ending March 31, 2022. On the next slide, we recorded operating revenues of $6.2 million for the quarter, which is a decrease of $180,000 or 3% from the $6.4 million in the same quarter last year. The decrease is primarily due to paying performance fees in the current period and receiving performance fees in the prior period. Operating expenses for the current quarter were $3.7 million, an increase of $595,000 or 19% over the same period last year, primarily due to the following reasons

[Holly Schoenfeldt:]

Thank you, Lisa. On this slide, we always like to do a breakdown of our mutual fund assets. So, as you can see here, a majority of those assets are in emerging markets and natural resources, while 26% are in domestic equity and fixed income. Similarly, if you look at assets by distribution channel, you can see that 82% come from retail, while 18% are from institutional. And on this slide, I would like to invite all of our Grow shareholders to an upcoming webcast. We will be hosting in conjunction with ETF trends on gold and gold mining stocks with the discussion around our GOAU ETF as well. And this will be taking place on May 23 at 1

[Frank Holmes:]

Thank you, Holly, and thank you all shareholders for staying with us and any new ones have come and joined us. Thank you.

[End of Q&A:]