Q2 2022 US Global Investors Inc Earnings Call
Yield, which is better than a five year government bond slightly less than now 10 year government bond, but we've been paying these monthly dividends a 0.07.
075.
Approved through March 2022, it's reviewed by the board quarterly.
And as you can see in our presentation I've fuel Nissan will articulate the cash flow numbers, we feel very healthy and a good cash position as we continue to build or replace our cash because we did live through.
A crypto winter and a longer cycle and gold and the airlines industry and so recently we've had this incredible surge in those particular assets.
Now the share repurchase program.
Has lots of regulatory rules around it.
And I think it's important to recognize that we've had this for a very long period of time.
And we have to go through a renewal process, but it is implementation issues that have to do with regulatory and so I want to turn it over to Lisa just give you a little more.
<unk>.
Color on our stock repurchase program.
Thank you.
Our stock buyback.
Shareholder inquiries about that.
It will be helpful.
Alright, Thanks, Ed.
Rules and regulations and public company related to purchasing boiling it down and start over.
Policies in place to help.
Assist us in complying with all the things you mentioned in one of these is our trading window policy.
These are not permitted to partition sell our stock.
If they had material non public information and at certain times during the year. Our company may be considered having material non public information, especially maybe around quarter ends where the company has the information of the financials.
But those haven't been disclosed to the public.
Therefore trading window policy is typically close maybe.
Maybe one to two weeks three weeks before quarter end and then lastly till one do a few days after.
The filing has been filed.
Albeit like this.
In general our closed windows.
Typically do not make decisions about buying and selling stock.
We also have a safe harbor plan that we set out during an open trading window that then would allow us to trade during the quarter was pulled out.
We're not making any new decisions during that time.
Typically our trading window closed with a couple of weeks before quarter end and then opened a couple of days.
After we file our 10-Q or 10-K.
But I also want to remind people that at one time, we might not have an open window for example.
Our 10-K is due 90 days after our year end, which is typically around September 2008.
And that is within a couple of weeks.
The quarter end of September .
So if we had if we file on that day.
We would not have an open window because it would have already been closed for the next quarter.
And we noted that lately with our delays with our filings and we Havent had an open window.
Mid June of last year.
And it won't open until next week.
So this does affect of making decisions on new purchases.
Hope that was helpful and answered some of the questions that our shareholders have.
So as you can see here we.
We have $4 1 billion average assets up 40% year over year, $6 6 million in quarterly operating revenue plus 39% year over year and $3 $69 million quarterly net income up 50% quarter over quarter I think it's important.
To recognize what's happening at the composition.
Taking profits.
And hive and enrolling them over that on average.
How much money, we make from operating business in most of our earnings over the time and our losses came from during the virtuous cycle that we experienced in the gold asset classes.
And also in the blockchain world.
Hi.
They cost us losses were told me from operating.
Now I would like to look at this visual to put things in context, because we've had lots of shareholders inquiry.
And I totally relate to them as a major shareholder in the frustration.
This lease was trying to explain that is that you can't do stock buybacks unless you have an open window, we can't rollover of things in that period in this whole discussion.
Taken place with BDO.
Is create a delay so many delays in having open windows and that has impacted us in our ability to buy back stock.
But I believe that next week.
Where it should be.
That open opportunity time, and I think that's important but we have some shareholders that that's been around for a while.
Thank you very much but I remember them complaining about grow being undervalued was <unk> was growing in assets.
Back in December of 2020.
It was very evident during that year it was a.
Epic move and Jessica Etfs, both in trading volumes.
In asset collection.
And we were deeply undervalued.
And we started all of a sudden machine that crypto winter has thawed.
And we started seeing this big price auction.
And bitcoin.
A theory.
And so we were undervalued.
And during that 2021 year last year, we treated about 225000 shares a day.
But what's interesting is that in April 2021, we treated 12 billion shares for the months Thats almost our float.
Average overall daily volume was 600000 shares a day. So there was lots of time for people that wanted to get.
Get out or worried or the volatility and we have this incredible move.
Believed that we were undervalued, but with the issue came from thereafter was not being able to get our financials out in time.
Always delays and disappointments coming with the auditors.
In this sort of resolution of.
Our valuation of assets, so I think that.
That's behind US now and Thats whats positive and constructive about it.
And I hope for those shareholders.
That that move that took place last year to $12 that was predominantly goal not gold sorry. It was crypto it was not gold it was most interesting and it wasn't jets.
Had to do with this huge move a bitcoin ethereum dominating all the media and lots of sentiment and our investment in hive.
Sudden hype also exploded in stock price and trading volume during this period and then it start to cool off.
But the hive as an investment is continuing to grow its revenue and balance sheet, but the stock has basically been.
Sideways.
When you take a look at relative to the spectacular growth in revenue and earnings has been able to achieve.
Now this is another thing that's really important as you can see that during that crypto winter and during.
Jets and gold being sort of quiet asset sell eight the column.
Our cash positions, we're always low and we had many losing quarters during that time period, and we chewed through a lot of cash weathering through that season, and it's almost like the biblical story of Joseph of apparel.
Ferro had bad dreams, Joseph said that meant to say.
Joining your good dreams, they have seven years of feast that make sure you save for the seven years of famine and that's something we've always done as a strategy to make sure that we have lots of cash to be able to launch a product and whether any type of these crypto winters or goal winters as they like the column or stock market winter.
And so I'm very very thrilled and Thats one big reason late last year that we crystallized.
The selling of <unk> shares.
And the last minute, we end up rolling into this debenture.
And as.
<unk> had very different options to look at.
And I think it was explained in the last press release, but whats interesting here in this visual for you is that the cash went down and then the cash basically and investments on our balance sheet have increased nicely and today that investment in hive has been earning a yield and income.
And it's highly on.
Unexpected we had hoped for lower volatility, but the whole process of evaluations has created greater volatility and getting our peers our financials, so but underneath this the company is doing exceptionally well.
And both companies.
U S Global investors' operating investments are on particular operating earnings from running the business.
Is doing exceptionally well and and as investment in Hive is also doing well.
And I wanted to also take a look at this this is another visual that you can see that our assets and remember we make our money by charging on average 60 basis points. So the average had a big surge until June of 2021, and then it came off over army chrome fears.
And there was the end of the Delta fears and then we come into the only grown for years. So every time there is a wave of negative sentiment and then we start seeing lockdowns take place by governments it impacts the jets ETF assets. They did go from $12 <unk>.
<unk> in 2020 in the in the second quarter of 2020 and.
Ran up to about $28, then fell back to under 20% and now are popping back up but whats really remarkable is the trading volume in the month of December of 2021 was over $300 million shares.
We discussed in our press release.
So it doesn't impact our operating revenue as you can see here, it's a simple mathematical model that it's easy to calculate if you have a big <unk> and <unk>.
Assets in new charge 60 basis points youre going to do $6 million of revenue a year.
You can do this theres many smart.
Fund managers I know that take your total assets off of Bloomberg and calculate what the revenue could be and it seems to have enough people that are doing that so the omicron fears impacted jets jets assets were down and Thats, what impacted our operating revenue.
This is an important visual to understand is the stability of our <unk> and as you can see operating income for the six months basically 78% we did realize some gains.
From our investments and I think this will probably notched up to a higher level based on what I see today on operating income.
And our investments.
To crystallize, but what's important is that as asset managers that most of our profits are coming from day in day out operations.
So this is the case study like the DNA of volatility I always like to share with shareholders, especially those that are not <unk>.
Analysts wrote their own grow shares, but what you can see here is that if we have.
<unk> million dollars.
And assets in our average expense ratio for that is 60 basis points that means the advisors revenue of 600000, and if it goes to $4 billion that 60 basis points to $24 million.
And when you have a $100 million are not making any money really.
It takes more than $100 million to make money, if you're spending any marketing dollars.
And what's interesting and what I've seen and this is it takes about $4 million to $5 million and four to five years for a product to really take off you have to be committed and have the cash and spending power you want to get it up to $40 million of 60 basis points, because its going to cover your legal and your accounting call.
It's not going to cover your compliance internal compliance and marketing.
Educational cost and Thats. The additional part so you have to spend a lot of money like a rocket taking up the space.
Huge huge fuel tanks to.
To get away from the pull of gravity and the same thing here to creep the branding and Thats, what we saw with the jets. It was basically the fifth year.
After quarter after quarter talk into <unk>, making presentations the weekly blog and other information that it became very aware to investors everywhere.
As the only go to product that really captured.
As a smart beta of this industry.
This indices a theme and also a smart beta approach.
And along came Covid and.
The math suggested to a lot of people that a year later the stocks with double after falling so much during the fears of Covid and a lot of those millennials I've mentioned before we're accurate. So today. It's as important you can calculate what the assets are simple street sheets.
And add them up what our revenue is going to be and so this is a simple methodologies to appreciate.
So here's a summary of the cash flow I am going to turn it back to Lisa for this slide.
<unk> comment about the sort of cash flow summary.
Net cash provided by used in operating activities.
And this is Ken.
Canada is a little bit and mirrors.
Our slide that we had back in the back half and how that was currently.
As you can see.
Operating revenue our excellent cash provided by operating activity.
Thank you.
Yes.
And timing on net <unk> payout.
Bye bye.
That you can really see.
Having that operating level.
The amount of cash flow.
Thank you Lisa.
So we are undervalued and many different types of factors and analysis.
I showed you the Dow Jones Global asset management Index, we're looking at the DNA of volatility.
And so when you look at that visual when you compare us to the average PEO ratio EBITDA ratio their cash for whatever factors that bloomberg likes to publish and they give you this visual to look at.
You can see that we are a great GARP stock we are a great play on gold.
We are a great play on.
On the blockchain crypto phenomenon and.
We also have an incredible.
Brand.
Awareness on Jets, ETF I'm going to comment on what we've been doing to enhance that brand in a few seconds. But this is a comparison and then a lot of people don't realize invesco that 40% of our <unk> assets are the <unk>, which is a phenomenal sized asset.
Capturing basic NASDAQ and as you can see the industrial trades at 154 times price to sales, we trade slightly higher but we are less than wisdom tree, which is 100% Etfs.
And if you take a look at return on assets.
Lean company and our return on assets as you can see our 30% versus $4 seven and $5 two.
For those shareholders is that we're trying to be as frugal as possible pay bonuses based on performance of realized gains.
Realized.
Real performance, beating the index fund managers whenever they beat the index that the fund has to go up against those bonuses for that otherwise we remain very lean and it shows up I think is the return on our assets.
Turn on our equity.
Another important factor as you can see.
We have done an outstanding job.
Return on our invested capital.
And it's much higher than invesco, and it's much higher than wisdom tree.
So that shows up in our P/e ratio that yes, we're deeply undervalued.
One could argue that shows invesco and.
And wisdom tree was entries of lumpy average, that's roughly where the average.
The asset manager on a global basis trade side. So if we were to trade at 15 times earnings. The average then grow would be substantially higher.
Now that I think that.
We've got our audits systems.
In place, we're able to make financial disclosures, you can get them all out faster better and a lot.
<unk> that took place is behind us.
I think.
We will be able to tell our story with simplicity and clarity that we are an undervalued unique asset class.
As a boutique investment manager and another way of they can look at assets to market cap is another way when you compare to wisdom tree, our best go to U S. Global we're deeply undervalued on assets to market cap.
So the outlook for grow is staying powers for the Jets ETF, we've expanded the global footprint and where in Europe listed on the UK, The London stock exchange.
We've expanded into Peru.
Mexico and <unk>.
<unk>.
Is the next big one in.
It's interesting to see.
This allows you I think when you get listed in these other jurisdictions to be able to go into their pensions and there are other profits.
And the high net worth customer likes to have assets in U S dollars and so jets is one of those ways to play the secular the rebound in the global economy.
The Jets ETF is a great way to play it.
And with the continuing vaccine rollouts and business travel expected to greatly improve by the fourth quarter of this year.
And ancillary fees to start to be rising for the airlines industry borders are reopening travel restrictions are easing like England has dropped to all travel restrictions.
I think thats.
There's much more upside opportunity and for investors to realize that just was in the low thirties fell relative to the low teens bounce up to the <unk> and it's at the lower end of the <unk>. So it has the capacity to appreciate 40% to 50% to get back up to where the stock.
We're <unk>.
Before COVID-19 . So this has caused many people have different opinions.
<unk> driven as financially driven.
What I do share with you is that Warren Buffett was a big headwind when I first launched Jets I had listened to everyone talk a Warren Buffett didn't like the airlines and I kept saying ease of GARP investors, you'll like them any fell in love with them then it fell out of love with them during Covid and that was basically the bottom.
When the airlines took off so Warren Buffett has a very different rationale being 91 years old his view.
It's very different than millennials coming in that were important and igniting the huge activity that took place in.
Jets ETF.
What we did see just recently is the M&A activity in the airline industry.
The frontier Spirit merger, the Frontier group and Spirit Airlines unveiled plans to create the fifth largest U S airline and a $2 $9 billion merger. The merger is expected to close in the second half of 2022 and is projected results as of synergies of $500 million a year.
What is really fascinating is that this is all happening where we had this negative backdrop.
Cole that still and the new variants are supposed to be coming out, which we're going to have to expect.
And so what you have to remember is that we did this slide that during COVID-19 . There is pent up demand going into the end of 2020 to start going south to get out of the winter in the northern States and note of.
The Nordic countries, everyone want to get shelf in Asia, They want to get the Thailand. They did not want to be in Japan for the cold Winter. So you started to see that.
Creation in a bear market cycle of negativity the creation of new Ipos, New Airlines like Breeze.
And so you saw them in Europe , you saw them in India, you saw something with even all of this dealt a warren buffett getting out of the industry was the formation of innovative capital.
Looking at looking past this drought.
In air travel and Lockdowns looking over this sort of valley and saying the next mountain peak and here we are.
Still with some doubts.
Regarding COVID-19 and we're getting a big M&A work. So what you do what you are seeing the leader in these big New Ipos and the leader in the M&A work is out of the U S.
So I think the other part is the stellar air cargo.
You did see that the other airlines during Covid started transferring no passengers. If you recall they went from $2 7 million people they've been cleared by TSA down to April of 2020 to 90000, now lets back over and robust above 2 million.
I think that you have seen that the cargo was an important part for some of the airlines are surviving but the cargo airlines now they're unique that only carry cargo. They have had incredible pricing power and I know from moving technology equipment from Asia over to Europe and to Canada for.
Hi.
In technology, we have seen an explosion in the cost of shipping anything and it doesn't matter or is DHL by.
By air or if it's by boat.
The shipping rates exploded and this is very similar to me launching jets was I noticed there is tremendous change happening in the airlines industry. After they've just gone through many bankruptcies and thats usually during the valley that the opportunity is to look for the next mountain peak and I think that we're going to see supply line constrictions in.
Restrictions, we're going to see.
The ability for them to turn on a dime with all this pent up demand is going to be very difficult and based on the history. In research. We've done we launched C and C is basically airline cargo and shifts.
And there was a ETF previously called seed that was shut down was $100 billion in assets just at the very bottom.
And so there really is no other.
See an airline's cargo way to play Asia, turning as economy in China has predominantly been locked down they use robots to move and load up the ships when they ship things across to America, and but there are countries basically locked down in the country is going to unlock and when that unlocks we're going to.
See a complete different paradigm shift in the ability for these cargo companies to make a lot of money. So we're very excited about launching C.
ETF and so it's laser focused.
We are laser focused on capturing new assets as I said earlier, it's important to get the $40 million because basically it starts covering its out of pocket direct expenses, but then we still have more money to spend internally on marketing and branding and we've got the cash and the capital set aside to be able to make.
This particular product growth.
Hi, this is still an important investments.
For U S global as I've mentioned before it's our proxy we do not there is no ETF that allows you to buy bitcoin directly this was our proxy.
In that industry, we were the first to come out and make that investment.
Went on as a <unk>.
<unk> before becoming executive chair during the Crypto Winter helped turn the company around the company has grown.
Higher President and Chief operating Officer.
And we've been able to participate in a series of acquisitions during Covid and Canada and grow the business. We have some of the highest gross margins in the world. When it comes to this business, we've been able to expand.
And so the record revenue for this past.
For the fourth quarter is just as wonderful as a company.
If you just looked at as financials and its ability.
Hi provided as January production update.
It produced 264 bitcoin.
It has been expanding its capacity to produce more bitcoin and if you look at the equivalent that is converting as he theory and production is a big point then equivalents over 'twenty 100.
Equivalent point, so we're talking about a very substantial company that's doing in today's pricing, it's easy to figure out.
Is about $600000 a day revenue based on one big cleaning during March as today and so with that this is a company with 20 employees and I think thats basically now able to grow in a very orderly fashion, but it's very competitive on the marketplace.
<unk> and.
And I wanted to be able to take my time going forward. Its also will be able to focus on the creation of the growth.
C and the branding of see like we've done with Jets like I said to you before.
<unk> millions of dollars of capital.
A four to five years to build our brand awareness and uniqueness.
<unk> offers you could not buy a lot of those assets those shares that are in Taiwan.
Also in South Korea for inexpensive ratio. So I remain very bullish on where we are in a position and now I want to turn it over to Lisa <unk> Who's done a phenomenal job as CFO of navigating through this past year.
Thank you Frank.
And I would like to thank our shareholders again.
All the patients.
Yeah, they have been challenging during that time.
Paul.
I'm trying to catch out.
On our filing.
Small team.
Yes.
Our committed team getting information out to our shareholders as soon as possible.
But still required and we either way and do all the diligence that we need to ensure.
That was almost shlomo.
Thank you for your patience.
We can go to the next slide.
And we did have another strong quarter.
Thank you some financial highlights.
Average assets under management was $4 1 billion.
2021 up 40% from the same quarter.
<unk> operating revenues increased approximately 39%.
Quarter last year, and our quarterly net income was $4 6 million and it was an increase of 50% at that time.
Now I'll review, our financials in more detail.
On Slide 29, we recorded total operating revenues of $6.
It's nine full quarter, which is an increase of one 9 million or 49% on the $4 7 million quite announced yet the increase is primarily due to increases in a handful of under management, especially in our <unk>.
Operating expenses for the quarter were three six months.
<unk> of $1 million or 22%, primarily the following reason.
Compensation and benefits decreased $1 five a 47% mainly due to decreases in bonuses due to higher realized gains on sale of high arm in the prior year and that was somewhat offset by an increase in the amortization.
The company did this is Bob Hopkins in June 2021, and the Comparables Atkins with amortized over six months.
Jumping 0.1 and that was concluded in December .
2021.
General and administrative expenses increased 474%.
470, <unk>, 7%, primarily due to higher consulting and professional fees and higher.
<unk> again, mainly due to amortization of stock option on slide 30.
Operating income for the quarter ending December 31, total for one and $2 9 million.
And.
Our other income decreased 29, when compared to prior year and again, mainly related to the high <unk>.
<unk> on a realized $15 million gain relating to wow in higher unrealized gains in the qualifier on.
The current quarter, we will have approximately $962 million in realized and unrealized gains on impossible.
Net income after taxes for the quarter was $3 $6 million or 24% 20.
Thanks, Dan.
Moving on to Slide 31, we still had a strong balance sheet, one called the high level of cash and securities.
On page 17.
Have no long term loan.
The company has a networking capital of $21 9 million.
Eight.
Normal 38% since June 32021, and a current ratio of mining farming alone.
I'll now discuss.
I would like to summarize our capital.
Our strategy.
As Ed.
Slide 34.
To ensure that we have resources.
Work on and launch products.
Talk about the global earlier that you are exploring.
That's not thousands of hours, while smart beta bionics.
And even once that one it will take time for that product to grow and become profitable.
I'm sure that we're in a bit.
And to be able to take that timing.
As product manager so they are comparable.
Likewise, we want to ensure that we have the capital to take advantage of any future growth opportunities.
We are open to opportunities and know that they can be short loan when we want to be prepared if and when they come our way be able to take advantage of malls.
We are also keenly aware of Michael fluctuations and have weathered market correctly.
Alright. Thanks.
So yes.
There is a winter or for some reason the asset classes, we arent.
And that being in a bear market.
Now that thats been a turnaround, but we need to be able to handle the resources to get Google funnel.
We plan to continue our strategic buyback.
Program, even algorithm on down volume.
Some of it is prudent.
Strategically buyback start kind of on a point on.
Rather than Dr. Mccomber offer offer shares now.
Now these are long term strategy is staffed and review report regularly and then maintains ads.
Circumstances, just kind of the outlook that we handle.
Now I'd like to turn it over to Hollywood.
Our marketing and distribution.
Lisa.
You can see on slide 37, a majority of our mutual fund assets are in emerging markets and natural resources with 29% in domestic equities and fixed income and as for distribution more than three quarters of assets come from retail investors with 17% coming from institutional investors and again this is Jim.
Looking at our mutual funds.
On this slide Frank mentioned already that we successfully launched our Cts on January 20th, which we are very excited about I would like to invite all of our ROE shareholders to an upcoming webcast that we will be hosting in conjunction with ETF trend about the shipping and cargo industry.
With the discussion around Etfs. So this will be happening Mike <unk> at one PM Central time, and you can sign up by visiting <unk> Dot com or you can shoot an email info at <unk> dot com and ITE registration link.
On the next slide we are very excited to see business travel resuming and with that means more in person conferences and events. In fact, frankly is already set to speak at a handful of events throughout 2022 and excellent coming up in ETF exchange, which will be happening in Miami Beach, Florida.
And we will be promoting our participation and all of these events.
You are able to attend any we welcome you to join.
Moving on I do have some exciting news to share, which perhaps you have already seen a share on social media. If you follow us that way Huron University officially announced this week the naming of a new academic building with Frank Home Center for leadership ethics.
And entrepreneurship.
Adobe is specifically designed to support the university's mission.
Fostering a close knit community and cultivating passionate and civic minded leaders and we're very excited to do that.
On the next slide don't forget our educational content does not only come in the form of Frank talk blog or the Investor Alert newsletter, we let educating our shareholders key video content as well so be sure to check out our Youtube page and become a subscriber.
<unk> already won.
Lastly don't forget.
Do you share a majority of our content, including videos as well as announcements about our upcoming events across all of our social media platform and be sure to check those out when you.
You get a chance and on this final slide as you wrap up today's presentation I want to invite anyone listening to submit questions to me by E mailing info at <unk> Dot Com I also wanted to hand, it back briefly over to Frank Holmes for any closing comments today.
Any closing comments. Thank you. Thank you Holly and thank you everyone for.
Understanding of our past year, and we're focused most importantly, growing our operating revenue and cash flow and investments in companies we invest in.
We are very focus on the cash flow return on invested capital model for our different funds and it doesn't matter of smart data.
In the discipline of running U S. Global so thank you all.
Thanks, Frank and thank you everyone for your participation today. This concludes today's webcast.
Okay.