U.S. Global Investors, Inc.
Q3 2021 Earnings Call Transcript

Published: 10 May 2021

[Operator:]

Good morning, everyone and thank you for joining us today for our webcast announcing U.S. Global Investors Results for the Third Quarter of 2021. I'm Holly Schoenfeldt. At the end of today’s webcast, we will be addressing questions that were sent in prior to today’s call. If you have any additional questions during the webcast, please send those to [e-mail] after the presentation and we will get back to you as soon as possible. Now, as seen 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, Polly Schoenfeldt, Marketing and Public Relations Manager.

[Frank Holmes:]

Thank you, Holly. And thank you, all shareholders and new and old loyal shareholders for being with us for the ups and downs and it’s been an even – the past year has been an amazing rollercoaster. But what seems to be next in consistent has been growth in assets and look at those space and I think in that introduction Holly, we forgot to say that we couldn’t launch a blockchain crypto ETF but we were able launch HIVE. And that has been an important part of our overall success in addition to the airline recovery, the vaccine rollout, we benefited dramatically from the anticipation of the vaccine and then the vaccine rollout has led to spectacular growth in JETS. And I hope in this presentation we are going to walk you through that. We don’t believe it’s over. We believe that Canada is just coming out of the far. EUROPE is still on thought yet. But they are doing everything to get to the level where America is and I think we are going to get more growth in the airline industry around the world. And that is all to help driving surging assets management.

[Lisa Callicotte:]

Thank you, Frank. First, I’d like to start with our financial highlight on Slide 43. We had another very strong quarter. Operating revenue have continue to increase and were up approximately 23% compared to the previous quarter and 595%, compared to the same quarter a year ago. Our quarterly net income was $14.2 million, compared to the previous quarter loss of $1.6 million. Average assets under management were $4 billion, up for the quarter, 38% from the previous quarter and 632% in the same quarter a year ago. Now, I’ll review more details of our operations for the quarter ending March 31, 2021. Beginning on Slide 44, we recorded total operating revenues of $6.4 million for the quarter, which was an increase of $5.4 million or 595% from $914,000 the same quarter last year. The increase is primarily due to increases in assets under management, especially on JETS ETF. Operating expenses for the quarter were $3 million, an increase of $1.1 million or 59%, primarily for the following reasons

[Holly Schoenfeldt:]

Thank you, Lisa. Alright, as you can see on Slide 51, a majority of our mutual fund assets are in emerging markets and natural resources while 27% are in global equities and fixed income. And after distribution, more than three quarters of assets come from retail investors with 17% coming from institutional investors. On Slide 52, our sales and marketing efforts have continued to focus on our mutual funds including those concentrated on gold, natural resources and emerging markets, as well as our exchange trading fund. More recently, we have expanded our media presence in the cryptocurrency space as well with interviews by Con Telegraph and Coin Desk, just to name a few. The company and our funds continue to receive invaluable amount of viral publicity gains through these media interviews. And then, on Slide 53, you can see that GROW, our fund and HIVE continues to be highlighted by influential financial newsletter writers, as well, along with sharing and syndication of our award-winning original content by third-party publishers. The newsletters have loyal followings and received millions of visitors each month. Frank Holmes, the CEO blog, Frank Talk continues to grow in popularity as seen on Slide 54 and in fact, Frank Talk celebrated 14 years of publication this April. Frank’s commentary is often featured by prominent publications including Forbes, Seekingalpha, Kitco and Equities.com, each one with millions of monthly visitors. On to Slide 55, Kitco News, the biggest gold website in the world with an audience of over 30 million monthly visitors continues to feature the Gold Gain Phone Show with Frank Holmes gold market analysis and now crypto analysis. And in addition, Frank has become a frequent guest and commentator on both gold and digital currencies on Stansberry Research with host Daniela Cambone. Now, if we take a look at Slide number 56, at quarter end, we are going to look at the most visited Frank Talk blog post published over the past year and on this slide, you will see the most visited articles were as follows

[A - Holly Schoenfeldt:]

And Frank, I’d like to start the Q&A with a question for you which says, Jeff, is it significant scores of AUM for the firm, what is the company doing to ensure its continued success and/or handle any direct competition that may come up for JETS?

[Frank Holmes:]

Well, I think the first part of that, Holly, is that, the structure of that, the unique smart beta 2.0 it’s not just some factors are picking stocks. It’s the overall structure to try to capture 65% of the people that fly and the 2 million people that were flying in America and then how it’s expanded globally, we’ve made adjustments as the fund grew to be more dynamic and fluid, which we use stick to the perspective. So, we are cut up in trying to monitor that we can go deep the original bogie we set out and that was New York Stock Exchange global airline index. And so, I think that we’ve got to make sure we are telling that story that’s further to knock it off, because it’s not just, picking stock is portfolio structure. And then it’s now getting the story told in different geographic locations around the world and getting it listed. So, I was thrilled to see we are able to get it to Mexico and there is other opportunities in America. And so, we will continue. I hope we will get it in Asia too. So this is unique. And we think there is another big wave of opportunity in the airlines industry as the world becomes vaccinated.

[Holly Schoenfeldt:]

Perfect. Thanks, Frank. Lisa, here is a question for you. It says, can you please explain operating margin changes over the last few quarters?

[Lisa Callicotte:]

Yes. So, and I think this is a question that we had often, often, because our quarterly operating margins at September 2020 was 29%. And then, in December it was 10% and then at March – for March 2021quarter, it was 54%. So, I know a lot of people are curious about why there was a decrease for that December quarter and I do want to remind people that that really is related to a bonus that was paid in that quarter related to realizing on investments about $1.8 million. And so, bonuses are part of our compensation expense that included in operating expenses. But realized gains are included in investment income which is not included in operating income. So, we are seeing that expense and are operating even though the income is not included in operating income. So, if we remove that bonus from our operating expenses, then the operating margin for December would be approximately 45%. So, I think that is more in line with what people are expecting and it’s more, is a better representative of what our operational margin is, which would be 29% for September, 45% in December and 54% for this last March quarter. So we are seeing that as revenues are rising our – expenses are rising too but not at the same rate causing us to be able to have that increased operating margin.

[Holly Schoenfeldt:]

Thank you, Lisa. Frank, this is another question for you. It says, what is the long-term strategy for HIVE? And more specifically, how HIVE relates to you U.S. Global Investors? Do you plan to continue overseeing both of these companies?

[Frank Holmes:]

Yes. I am as Executive Chairman and that we’ve looked at CEOs in – issue there is to get someone who can manage the process knowing capital markets and datacenters. So far, we’ve not been able to do that, but it has not hurt us. Only it’s – we have a great CFO, outstanding the two of us are basically involved in the turnaround. We have to bias Ebor from Europe has been also critical with that. And then, we’ve expanded, now that we have the GPU one not only buying 50 megawatts capacity in Brunswick and having our own datacenter. We noticed that we did that deal for less than $300,000 of megawatt and a pure mining – crypto mining company paying $2 million. So, we think that were on the cutting edge of that and the importance of having a datacenter. And we can do that now because I have as a Executive Chairman, a phenomenal team that meets every morning and it takes a lot of stress off on where we are growing, what we are doing because we have technically six people that have come on with tremendous engineering expertise to, accounting expertise in the crypto space and running datacenters. So, I think the company is still lean and mean. I just don’t want to take a salary for it, because I look that as being one of our trust products and trying to managing it from that end. So, I am thrilled about where we are positioned for the next leg. The vision is to take it to a $10 billion company if all of our equipment that we imported was producing today, we’d be doing $300 million and having EBITDA of $200 million. But that equipment is we experience delays and disappointments coming back from China, the whole world is experiencing complaining about lack of chips from cars, most and then even Apple. And so we’ve had our own share of it of securing a pipeline of upgraded technical equipment. But we think that we will be able to triple what we were doing and if you looked at – power today, you can usually see that this is a company that’s come from doing $50 million in revenue, now with a runrate of $160 million going to $180 million, then going to $300 million. So, I think it’s a potential for a $10 billion company.

[Holly Schoenfeldt:]

Thank you, Frank. We have one more question today, so what opportunities do you believe lie ahead in terms of making for money for GROW shareholders? What can we look for to in the second half of the year for example?

[Frank Holmes:]

Well, we are working on some – I think an excellent new product that fits up to our expertise in global natural resources. And we’d be the only product out there. So, we are fast tracking the execution of that. So, we can also tell us the story and we think it’s a great product for investors for many reasons from retail to institutional and we can at least stay lean and mean. We have less than 25 employees. That’s really important for us to stay lean and flexible and outsource. We have outsourced some talents that we have to have, but we basically want to stay very nimble in how we are running the business, expand the footprint of JETS around the world. I think that that’s a huge growth opportunity. And I think that JETS can be a $6 billion to $7 billion product for investors. So, that bodes itself as very attractive. I think we are going to get another wave, rewards going to take off and I think there is going to be a greater appreciation for GOAU. What we have found is that, it takes about five years and $5 million to really build a brand and name. And that’s what we’ve did with some of our funds and then they took off, that’s what happened with JETS. It took five years. GOAU has been around for three, but I think on this next leg on gold, a resurface as that important inflationary hedge asset class that the gold stock themselves are much more profitable than ever that these shares will explode on the upside. So, they are opportunities. I think that that’s a $1 billion product. It should be more like about $3 billion or $4 billion when I compare it to how superior it is to any other Gold ETF that’s out there. So, I remain very committed, bullish and we are going to educate investors why we are undervalued at trading at less than 5 x of earnings. I think we should be trading closer to 20 x earnings and that means that GROW is huge on the upside, huge potential.

[Holly Schoenfeldt:]

And there are some questions about which is one of the most important and exciting portion of this GROW earnings webcast, Frank, if you could address if you have these. The first point, you addressed at the beginning on the holding strategy does, can you maybe go into detail about how much you have those holding?

[Frank Holmes:]

When we look at our holding this year, we’ve been predominantly just mining and banking all of our coins and it has been a big win for us. We have just close to $100 million in predominantly Ethereum and Bitcoin, but the major portion because we are the biggest Ethereum producer in the world is aetherium. So, and then, you add on cash on to that, that w are close to $140 million in U.S. dollars liquidity.

[Holly Schoenfeldt:]

Great. And another question about HIVE is asking, what is the strategy right now for listing in the U.S.?

[Frank Holmes:]

Well, we’ve talked about it before, it’s a process of a 20F, 40-F. So, we are going with a 40-Ffiling. We originally thought it was going to be a 20-F but we have gone to a 40-F. We’ve reached out to NASDAQ and so, we are in the process now and hopefully we can get this locked up very, very shortly.

[Holly Schoenfeldt:]

Perfect. One last question, in terms of HIVE, what is your runrate today? And what is the expected revenue growth over the next 12 months?

[Frank Holmes:]

Well, based on Ethereum and Bitcoin prices today, and some Ethereum Classical, so, we put a month ago when Ethereum Classic was $20. Some of our machines that are not been upgraded on to money Ethereum Classic at $20 and it went to $150. So, we are making a ton of money in Ethereum Classic, which we’ve been selling to use to the electrical bill and totaling the rest of our Bitcoin and Ethereum production. And so, from that end, we have a runrate today of about 450,000 a day and close to over $160 million a year. We have been public and that we are going to go out and basically buy a lot of Bitcoin machines, ASIC machines to mine Bitcoin that would take our total complex up to about 3.2 exahash. That means that our runrate would be over $300 million in 12 months from now and on a pro forma, we’ll be making $200 million. Not sure, there is always can be bumps and disappointments through this process, because I am just buying an incredibly volatile first mover bench as everyone is so aggressive at trying to secure equipment, get it delivered on time, get datacenters, et cetera. So we are very busy, but what’s really important for the investors is the acquisition of GPU 1 brought in the brain trust that I feel I needed it to scale of this to a $10 billion company.

[Holly Schoenfeldt:]

Perfect. Thanks so much, Frank.

[Operator:]

And thank you everyone for tuning in this morning. This concludes U.S. Global Investors’ webcast for the third quarter of 2021. And again, if you have any remaining questions, send those into [e-mail]. Thank you.