Q3 2022 US Global Investors Inc Earnings Call
So third and myself Holly Schoenfeldt director of marketing.
On slide three as always we would love to offer anyone tuned in today one of our jet go out you hive or Fiat. In addition, we have just luggage tags available. All you have to do is send us an email with your physical mailing address two info at U S funds dotcom.
Moving on to slide number four during this webcast. We may make forward looking statements about our relative business outlook. These 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.
Released.
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 five I will briefly review our company U S. Global investors is an innovative investment manager with vast experience in global markets and specialized sectors.
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. Both funds, we are well known for expertise in gold and precious metals natural resources.
Airlines are emerging markets and cryptocurrency.
Moving on to slide number six 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 ROE, but in any asset class Frank.
Holly.
D&A of volatility is another way of looking at our capital markets.
Risk and volatility are all intertwined in this.
This is a visual update a statistically looking at what's one day volatility is 70% of the time and for the S&P is 1%.
So whenever it's up more than that or down.
3% and a day that mathematically odds favor for a bounce for next day.
Other part of the 10 day volatility whenever it's plus or minus 3% as you noticed our goal in the stock merger actually the same with shocks lot of people, whereas asset managers index, it's moes or plus 2% on a daily basis and 5% over 10 days the airlines, which we have a huge asset class.
Our portfolio New York listed on the New York Stock Exchange, our ETF Jets, but this is the compare the Arca airline Global index and this non event 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.
Oil and oil has a greater volatility on a daily basis, 10 day and oil is the largest cost to the airlines industry.
The coin is plus or minus 3% is having a rough day.
And we took a 10 day for us plus or minus 11% and Tesla is the same as bitcoin and ethereum is even more volatile and grow as basically as volatile as the cerium.
When you look at over a one day over a 10 day period is because of our investments in hive blockchain in the gold space and also in the airlines and airlines, representing the largest component of our overall assets today.
What's driving growth.
Assets under management and is every day, you can download and get this information from Yahoo, finance or a Bloomberg in particular.
I'm going to walk through how most people calculated with our potential operating revenues going to be in Angola, as 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 licit not only in 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 then also with partnership with hand ETF in London.
Jets ETF is listed on the London stock Exchange and then the key investment in the crypto space has been hive blockchain, which is exceedingly volatile which has impacted our.
Our overall performance of our stock and sometimes creates.
A more of an interest in what's happening with crypto than our underlying operating cash flow.
But nevertheless, a more important as I really want to thank our top institutional shareholders.
Particularly those that voice funds have been long term partners.
In our company and Paris.
<unk> capital management.
As a specialist firm and small microcap stocks and also alternative asset classes like gold and then Theres. The Heartland funds also the small cap value specialists with an a phenomenal track record.
And then when we have the Blackrock institutional trust and the Vanguard.
Index was there basically.
Having a good percentage, but the real I would say the active investors here, a royce in Paris and Heartland advisors.
And I want to thank all of you anyone is invested in U S global.
I myself own approximately 17% of the company.
So when we look back.
<unk> increased our dividend by 200% in 2021. The company has paid a monthly dividend since 2007 current yield at a share price of $5 32 as of.
April 22nd was 169% stock goes down but that dividend yield is rising.
Monthly dividend payment is 0.0075, it's been approved through June of 'twenty two.
Viewed by the board quarterly.
The other thing that we've done has had a share repurchase program in motion and in February 2005. This year 2022, the board of directors of the company approved over an 80% increase the limit of its annual share buyback program from $2 75 million to $5 million for the quarter ended March.
31, 2022, the company repurchased 19487 shares of its class a shares using cash of approximately 97000 and the board may suspend or discontinue this at any time, but I think what's important for investors is Alicia will go into later in the presentation where granular.
Detail on the stock buyback and really this number for the past quarter is predominantly with the new program was implemented in the month of March.
Next please.
This growth is the 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 hive blockchain and the whole crypto space.
When it ran for $12 and traded as whole flow.
<unk> and <unk>.
Okay Milan.
With negative concerns on critical mining and even though a hive has the strongest ESG footprint and green only energy it tumbled down with all of the other crypto mining stocks.
As bitcoin is it shows you here, it's 60000 hive hit $7 growth went to $12.
<unk>.
The quarterly average assets under management, and that's something I want to focus on this presentation today for shareholders.
Ami chrome coming along and the fears and the shutdowns in opening up again and now we have China with another continued locked down the assets of jets remain pretty stable and theres lots of trading activity with the price of oil.
The price of oil falls in jest goes up the price of oil rises jets was down people are sorting going long tremendous two way 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 remove of mass for flying domestic.
Domestic flights and that had a big surge in fund flows into.
The Jets ETF.
Something else is in the financials.
<unk> is how mark to market of investments impacts non realized earnings.
This is detailed in Liza.
Meantime go into detailed people need it down the road, but it's basically showing you a 25% increase or 25% decrease in the equity securities at fair value and the embedded derivatives fair value in particular are the warrants that we own on high blockchain those war.
<unk> value beyond intrinsic value has to do with black Shoals. 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 can happen very quickly with capital markets.
Particularly asset classes, which we are known for gold.
Nothing for the group were down 25% in the quarter the airlines and also when it comes to the crypto space.
But we're really happy that we.
<unk> got all of our financial so.
And we saw that building our cash in what our numbers were.
Spiro versus a small cap asset managers, we far outperformed for the quarter.
And I think that's what's 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, a far outperformed.
This year of the Russell 2000, the Dow Jones U S asset managers index.
So looking at the quarter as this is actually at the end of.
December but when we look at those numbers and we'll get them updated.
For this quarter and has all the numbers come in but you can see here that our p/e ratio is the lowest.
And it is compared to invesco and wisdom tree $40 seven vessels assets of the QQ Q.
And wisdom tree, which is predominantly only etfs they have a higher p/e ratio and ours is 80%. So I would expect that we would have a bigger.
P/e ratio and I think the best what's going to happen.
We go through and continuing to build cash on our balance sheet and launch new products.
So 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 billion in assets and has a 60 basis points.
Is the expense ratio than the advisory revenue of 600000.
Per $100 million and as you can see at 4 billion is $24 million in revenue deduct your cost and you basically you have whats your free cash flow.
So our goal is to get back and actually surpassed September of 2000.
11, when our balance sheet was flushed with cash.
Had $28 million in cash and cash equivalents.
And you can see in March of 2020.
This excludes the investments we had in other companies such as hive, and Thunderbird et cetera, but just as is our constant cash equivalents.
At the bottom basically have a comparable 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 the $30 million and then the board can make decisions with the additional free cash flow to buyback more stock.
Or to increase the dividend.
So earnings earnings come from two factors operation earnings basically our cash flow investment earnings are realized and unrealized and thats the mark to market phenomenon that we talked about earlier that you must have must review reporting to be in compliance with GAAP and so when you add though.
Together you get earnings so what's important for U S. Global is that our operation operating earnings are very healthy robust and strong even with the big capital market meltdown that took place in the first quarter of 2022.
Our capital structure and our capital strategy is quite simple managed expectations for new product launches. This requires cash manage and preserve cash for future growth opportunities and market corrections like we're experiencing today and strategically buyback stock.
Using an algorithm on down days discussed and reviewed with the board on a regular basis. This is what our strategy is and we're sticking to it.
Now this to me is an important visual to give you a history of buying back grow stock.
If you take a look at September of 2021, we purchased back about $81000 worth of stock 13000 shares and then it fell.
During December and we was less downgrades, but you can see we bought back 154000. So the more volatile grow is the more we're going to buy back.
Basically the algorithm is saying.
And what the board has done is increased the commitment to buy back even more on the down days and when we come to March 2022, as you can see we bought back $97000 worth which is 19000 shares.
In the January and February the new plan and not been able to launch until we had the financials.
And that basically is the month of March so going forward, we expect to be bursting back much more in stock on these down days.
This is another simple visualization.
Looking at the numbers as you can see here.
In 2021, we bought back $181000 with the stock and in 2022, it's $233000 with the stock and with an 80% increase in the amount of stock being bought back.
Then I think we're going to see substantially more stock based on the algorithm and based on the volatility if we do not have high volatility it does impact of all of the algorithm.
Understanding compensation structure employees base salaries historically have been modest however, employee bonuses are tied directly to the individual's accomplishments and hard work and focused work ethic. We have seven core values that tied to the individual and then theres team results and team efforts. So.
<unk> can.
Definitely with further education earn bonuses in.
In addition to stock options and cash bonuses.
Myself, the CEO I receive bonuses based on realized earnings and based on free on free cash flow and earnings unrealized gains from investments not from unrealized only when something is going to fall to the bottom line.
This is something that in talking to some of the.
New relatively new.
Institutional investors.
I understand what's going on in capital markets mutual funds continue to see net redemptions and declines and Etfs continued to have fund flows and thank God. We pivoted in 2015 to go and launch Jets as I've mentioned before we've tried in the interim to launch our bitcoin ETP.
Jeff, but realize it wasn't going to happen. So we launched the first crypto mining company, a high blockchain, which has been a significant and important investment.
For our company and as our proxy in the blockchain crypto build out in that eco system of the world.
The next visual is just showing the epic growth in Etfs as you can see since 2011, the last time, we had.
This abundance of cash over the direction of $26 million, we had $28 million back then.
We've seen over a five fold increase in the number of Etfs. So etfs are definitely for tax efficiency and for many other reasons.
Less expensive to operate or.
Our garnering more and more assets.
In this for funds for saving and also institutional money is much more rapidly as using Etfs as a way to participate in capital markets and I thought it was most fasting during Covid March of 2020.
That ahead of the.
Federal Reserve power came.
Came in and was using Etfs in the debt market in the Muni bond market to get interest rates down for tax free.
States and for rolling over that and also corporate bonds to basically influenced the yields even though fed funds had gone to zero there was still relatively high yields but it was etfs, so youre seeing the federal reserve and other central banks in particular countries like Japan, and Sweden, 15% of the stock market is actually.
<unk> owned by the Central Bank and predominantly done through ETF format.
So building a brand jets ETF is.
Basically I am sharing with you took over five years to build a strong brand and product and just the back of the envelope. These are minimum numbers 25 webcast 250 media interviews 20 conferences, the travel to and sponsorships and participating in and over 61 on one meetings with virtual call.
As from retail to institutional to brokers and.
That's what it takes place and it's a it's a big build out it takes many years to build that brand name and we had a whole theory of how we're going to cater to a different story for millennials to hedge funds hedge funds one of Paris trading.
So some hedge funds wonder short American airlines because of price of oil is going up but they wanted to derisk that rich.
That risks so they went long jets ETF then there is the value investors like the bill Miller's of the world that were long the airlines because it was a great GARP investment also a great deep value for him.
<unk> traders traded back aboard the opposite to which way oil's going there's a growth at a reasonable price and when you compare trains and trucks jets are always a lot less expensive.
And trains and trucks and then you have the day trader because of his DNA of volatility. It has options that cover writing on it is an incredible.
Product how has caught the imagination from institutional to retail investors.
And we've also expanded into Mexico City as I mentioned earlier in Peru in London.
We are ambitious for other places to be launching to really build a moat around that adjusts ETF product.
The other big thing is go goals and and this is something you'll see by the crypto world of really trying to explain to people.
<unk> two of U S public debt outstanding that it would be go back to just before $2088. One trillion is now 30 trillion.
And if you go back even further.
We're going to have one hundreds of billions to now 30 trillion.
So the idea of fee it and not having some form of a hedge against it like gold and now it's become bitcoin and ethereum or other.
Asset classes that are decentralized asset classes and I think the operative word is very important are worried about a couple of weeks ago about understanding that Brexit was part of being decentralized away from the EU.
We're seeing where people are really upset about pollutants, Russia invading Ukraine, which is centralization, which is making the trying to recoup the USSR.
China was doing into Hong Kong.
This is all centralization and there was a global trend Thats anti global organization and it's all about being.
Disruptive by being.
Decentralized depending upon your own nation for its own products and services. So hopefully we can see we're trying to ride that wave out, but it means there's still a tremendous amount of money printing and.
Gold Gold is just an incredible product too to really appreciate the quantum mental approach, which we built jets on that.
<unk> goal is outperforming its peers.
Well, we were early in selling in Russia from this evil a door with solar of our Russian list of stocks, leaving only positions in oil producer Lukoil, the small position and a coal producer.
Withdraw came early and well timed because of a quant driven disciplines and a unique insight from our Polish portfolio analysts that the weekend before the vision. We had sold 99 point some odd percent of our holdings, whereas Blackrock lost 17 billion in just a few weeks following the attack they were slower to move.
Due to the passive indexing investment process. So this is a real tip off the heart for the power and importance of active asset management.
Being able to monitor crisis.
As youll see in our prospectus of our mutual funds that we believe that government policies are a precursor to change thus, we track and monitor both monetary and fiscal policies and we definitely saw the invasion coming early.
And enough to get out of all of our Russian stocks.
NAS mandates and air travel demand has already seen increasing what's really important for the sentiment is a TSA data comes out everyday started in March of 2020 has been a phenomenal trending indicator people apply 50 day, moving average and when its above its 50 day. They go long just when.
It falls below their out so you can see there has been tremendous volatility of last year trades in a note and up to March of this year that sort of weekly volatility has slowed down but this is one of the best indicators look at the growth of the airlines and what we're seeing now globally as beans travel binge beans, like when we were.
Homelink, <unk> watching Netflix or being Netflix and binge eating potato chips, while now has been travel and many people are reported as paying outrageous prices to travel and they don't care because they don't know if it can be locked down again next year. So it's really quite fascinating to see that.
Even with rising fuel prices and even with.
Sphere of the slowing economy that the airlines industry remains very strong in fact, there was a shortage of pilots.
And that's because for many reasons, but a lot of them are older and mature and they brought a new guidelines at a pilot just couldnt come from the Air Force and really start flying unless they had.
More than thousands of hours of experience that pass that knowledge and that comes back from the Great example, that you can get your driver's license. It doesn't mean, you're a good driver and the same thing. We've found for pilots you can get your pilot license. It doesn't mean, you're a great pilot and so they want more and more hours and thousands of hours before they'll let you fly a passenger.
<unk> a jet however.
Just not enough of them. So this is creating pricing power for the airlines and Thats. What has also happened with cargo, but what we're really happy as not only the distribution.
Globally.
The brand name is recently the Jets ETF approved on a mirror price and for those who are not aware of this one of the largest independent firms with a national footprint print.
<unk> managed through over a trillion dollars with 12000 advisors.
Now we launched our recent.
See the Sky cargo, which is 70% cargo ships and 30% cargo jets.
Because we believe that this is a systemic.
Our risk this happen and supply exchange, that's not going away and is given tremendous pricing power to anything that's cargo related and these companies are reporting incredible earnings and it's not going away when people I think it's just a short term phenomena.
Strong we disagree and so the full year demand for airfreight increased 18% compared to 2020 that would share with you that we know from sending equipment from China over to Sweden, and Norway for high blockchain. It was growing at 5% a month.
Every time, we are setting over equipment. So we're now seeing the other airlines converting some of their older planes into cargo because it's so profitable.
So I believe that that.
This sort of binge demand around the world, but the ability to move products that 80% of all of our products come from cargo ships and anything that's disruptive in China coming across automatically gives these companies tremendous pricing power.
So the C. ETF is a big win for Us and we're in fact, the market unraveled and it went up slightly dipped below and now it's back was that back up.
And these are these cargo ships and airlines are going to see.
A wonderful future.
And as you know that 80% of the volume of the world's trading goods is carried by sea and for developing countries that percentage can even be higher.
And with the supply line disruptions not going away and the invasion of Ukraine that only gave them more pricing power.
So this is a classic example for the quarter.
How well you can see here that.
C Etfs did.
Versus the overall markets.
Normal disclosure.
Disclosures.
<unk> announced a supply agreement with Intel which is the first for Intel that only deal with the company with.
Strong.
<unk> Green footprint and hive has the strongest so it's agreed to purchase high performing AC chips, which are both 40% less expensive than Chinese chips, and 40% more efficient that will incorporate in the state of the art mining equipment is custom built for hive.
Now the hype convertible debentures.
What are they.
It's a complex.
Analysis for the auditors.
Which was.
Frustrating for all shareholders and for management, but we did get it done but it was an interesting structure because it protected grown the downside allow us to replenish our cash position and and this is showing you that that node has been paying us interest on a monthly basis and we take a look at is paid.
This over 1 million three and the principal paybacks are pushing what $3 6 million. So the total cash return is $4 9 million in the past 12 months.
So anything below its convertible price immediately we get our money back cash and so it gives us the options on the upside.
We converted into stock and we also have a 5 million warrants.
But in the down periods in downdraft. It gives you the ability to pile of cash on our balance sheet.
This is important as highest strategic investment is shared with the grow shareholders. Hypervisor April 2022 production update two extra harsh means we're mining about nine to bitcoin a day, which is about 1% of the global harsh rates were $6, one tera high shall be theory.
Mining so when you add our BT corn production on a monthly basis and our theory.
We're basically been putting a bitcoin on the balance sheet for a cost of $4000.
Hi reported record revenue of $68 million up 400% from last year net.
Net income $64 million gross margins of 90% mined over 697 beat the coin and over 7000 whenever ether and digital assets on our balance sheet was $168 million.
Now I'm going to turn it over because I have been very long winded with lots of important content to share with you.
So Lisa <unk> has been hard working and getting these financials out to you in a timely basis.
Thank you Frank.
Good morning, everyone first I'd like to start with just a couple of highlights.
Our average assets managed.
One.
At March 31st quarter.
Some of our prior plan and slightly down.
Although we had total operating revenues.
Good morning.
And an operating margin of 41.
Now I'll go into more details about our results of operations and quarter ending March 31st.
Yes.
On the next slide quite an operating revenue.
Moving to the corner, which is a decrease of 181, 1%.
Thanks, Dan.
Decrease is primarily due to poor performance.
And receiving performance.
Okay.
Operating expenses for quantum of $3 71, an increase of 590, 590% of <unk>.
Period last year, primarily due to the following.
General and administrative expenses increased to Canadian 12000 affordable.
Early data higher bundle.
The higher coupon pools.
Absolutely.
Advertising costs increased.
With more volatile primarily due to the launch of the Louisiana.
These increases were somewhat offset by decreased employee safety.
It means we will pro forma.
On the next slide we see our operating income for the quarter ended March 31st two five months.
745000, compared with the same thing.
Uh huh.
You'll see that our other income.
Deeply flawed model.
Hi, Yang.
That is because in the current period, we appointed unrealized loss.
$4 5 million compared to unrealized gains in that.
One model.
Same quarter last year and this is what Frank was discussing earlier relating to the volatility of our investments.
Yes.
Net loss after tax for the quarter was 846 loss per share.
Sure.
Moving on to the last couple of model, we see that our balance sheet is still strong.
A quick high level possible in for Ken.
And then on the following.
We will see that we still have no long term down on the long term.
Liabilities behalf.
Thanks, Tom.
On the left side you can see that.
Change in cash over the last few years.
Our GAAP EPS.
Possibly at much lower levels.
Number two.
Cash increased significantly due to the fall apart on the trial.
One in the following quarter ended March 30, <unk> 2021.
Cash decrease in the price.
And behind the Benson.
We'll be increasing our cash position.
Our net income cash proceeds from sales of investment from a poem as you'll see from the harmful ghansham.
At March 31, 2020 attempted to have working capital of $41 million.
Okay.
A 47% in June two.
2021, and a current ratio of seven <unk>.
Thanks Juan.
The increase in cash and accordingly, net working capital primarily due to net cash provided by operating activities of $9 one room.
From sales of investment $2 1 million from proceeds from the principal Paydowns in Q1.
Yes.
With that I'd like to turn it over to Hollywood marketing and distribution. Thank you Lisa on this slide I would 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 asset by distribution channel you can see that 82% come from re count by 18% our prime institutional.
And on this slide I would like to invite all of our shareholders to an upcoming webcast, we will be hosting in conjunction in ETF trend on gold and gold mining stocks with a discussion around our EMEA ETF as well and it will be taking place on May 20, <unk> at one PM central time and find out either by visiting.
<unk> dot com or sending us an email and file at that time.
<unk> com.
Moving on to the next slide don't forget that our educational content does not only come in the form.
<unk> top slot or the Investor alert newsletter, we love educating our channel partners shareholders and video content as well that will make sure you subscribe to our <unk> video update on everything from God to airlines and the shipping industry.
And lastly, as we wrap up today's presentation I do want to remind everyone that we share a majority of our new content as well as announcements about upcoming events.
Not all of our social media platform and make sure you check those out when you get a chance.
And just as a reminder to our audience. If you have any follow up questions. Today. Please E mail to <unk>.
Info at <unk> Dot Com I would now like to hand, the presentation back to Frank are any closing comments great.
Thank you Holly.
And thank you all our shareholders for <unk>.
Staying with us and any new ones have come and joined US. Thank you.