Q1 2023 US Global Investors Inc Earnings Call

<unk> 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 in emerging markets now on slide number six.

I would now like to hand, the presentation over to CEO , Frank Holmes to review, what we believe is one of the most helpful visuals. When it comes to investing not only for growth, but for any major asset class.

Okay.

Thank you Holly.

And thank you for all the listeners and definitely.

Share with you. This is a very important visual to understand volatility every asset class has its own DNA of volatility and over time. It can change its not dramatic by quarter by quarter, but over time periods of three years, you can see changes taking place, but what's important here is that gold bullion is really.

Less volatile overall.

10 days of the S&P 500, it used to be the same.

I felt that was most interesting and then when we look at asset managers like ourselves.

Our daily volatility is twice what the S&P 500 is and we're known for our gold funds. So were also twice as volatile as gold bullion and over 10 days you can see once again were twice as volatile over 10 days. So it's a non event for 7% of the time over 10 days for grow to go up or down 9%.

Whereas the Dow Jones asset managers only six so why is that is because we have other investments that also are volatile and are.

Our biggest asset classes jets ETF as you can see it's daily volatility is 3% what grow is but over 10 days, it's 8% and our investments in companies like high blockchain.

It's much more volatile so you get a sentiment move.

But what's really should be most important to all of US is how we're doing from a revenue and cash flow and running the business.

Our investment process, we use a matrix of top down macro models and bottom up micro stock selection models to determine weightings in countries sectors and individual securities in our Etfs are smart beta two point also we've done a lot of regression will work on the <unk>.

So a construction and back testing. It in addition to looking for the factors for stock picking.

Also we write and we believe that government policies are precursor to change and as a result, we monitor and track the fiscal monetary policies are the world's largest countries. Both in terms of economic stature and population, we focus on historical and social economic cycles, and we apply both statistical and fundamental models, including growth at a reasonable price.

We identify companies with superior growth and value metrics. We overlay. These explicit knowledge models with our tacit knowledge obtained by domestic and global travel for firsthand observation of local and Gilles political conditions.

Well as specific companies from projects, we use a matrix of statistical models to monitor market volatility as you saw how we did.

I'd like to talk about the DNA of volatility of different asset classes and money flows and as a result of times we maintain.

They maintain a higher than normal cash levels.

So our company values, our respect for people and teamwork initiative responsiveness curiosity to learn and improve performance of results oriented people focus work ethic recognition of achievement.

Something that we're very proud of how we run this company.

So what's driving grow while interest rates are going to talk a bit about that had been a headwind for all asset classes bold as an inflation hedge.

Good to see that gold in the past couple of.

Days and particularly this week is back above its 50 day, moving average which is bullish for the gold stocks and we're seeing a big lift to date.

But in particular is having the only airline and focused.

<unk> our newest one is shipping industries. These etfs are really important and I'm going to highlight that our go way you is our gold ETF and its done what is supposed to do it's outperformed.

The peers and so we're happy about that.

Hi, blockchain Hive blockchain is a unique investment that we couldnt launch an ETF in the space.

For various reasons, which we've talked about before so we launched the first.

Crypto mining company in the World and it's always been green only with a very strong strategy that differentiates itself from its peers.

I really want to take this time to thank our shareholders a particular.

Royce group.

Vanguard is predominantly the index that they have and.

Parents parent capital management.

Michael corporate there has done a phenomenal job in and then we have a new investor as a deep value investor.

Ken in wealth management.

Out of Florida, and then Bill <unk>.

Out of Milwaukee, the Heartland advisors, so I want to thank all of you for staying loyal and.

Staying with US next please.

So parent capital management, just did an interesting.

Slide and I thought it was very timely.

Looking at returns post mid term elections are high and just as they are reliable negative going into mid terms as you can see here. So it looks after these election results.

Historically, having a.

Democratic President.

And Republican Congress and Senate.

Or split between them is usually the best for the stock market and micro caps in particular going into this year I've taken on the Chin. So I think we're going to get a reset button here that we halfords shareholders a lot of upside as the industry category and.

Give you an update of how we're performing within that group next please.

Well, we're really happy with Stonegate capital.

Only get this report off they are a great group out of Dallas, They do have unique research.

And they are they cover grow and they cover many micro cap stocks.

So I thought it was helpful for you to see that they finally came out with this report.

And we're thrilled about it.

Timing couldnt be better.

Actually after the big correction that took place in September .

So value valuation multiples and types of methods. So theres equity multiples as comparable company analysis. There is precedent M&A work and transactions and then there is the enterprise value multiples. So there's many different ways of looking for valuations of what makes the stock so unique and spa.

<unk>.

But what we find with U S. Global is a lot of times, we get a sentiment premium.

And it can be positive or negative.

I myself.

117% of the company and approximately 99% of the body control next please.

So we increased the dividends last year by 200%.

The stock did come up with in September with the big sell off.

We've been paying dividends since 2007, our yield is close to about 3%.

The dividend payment.

It's been consistent and it's approved going into your yet and reviewed by the board on a quarterly basis.

In February of this year earlier, the board of directors of the company approved over an 80% increase of the limit of its annual share buyback program from 275% to $5 million.

For the quarter ended September the company repurchased a total of 39965 class a shares using 133000 and this may be suspended or discontinued as deemed necessary, but we are.

Buying back and it's an algorithm that buys back on down days.

And that's what's important and we believe it's a good time.

It looks very attractive, but let's take a look at the first quarter of 2023, the company remains profitable despite challenging macro academic.

<unk> environment. The company continues to buy back stock in down days and pay a dividend and the company has a strong balance sheet, which includes both cash and other investments.

So understanding assets under management versus average account size.

The reason why we put this to share with you is that one of the things that U S. Global is always been is to have this call. The ABC plan.

Where we make it this only $100 down originally it was a couple of dollars a day for people to save and invest and I don't know it was really interesting when we had tariffs.

Terry Savage call me and tell me during Covid crisis.

Her Gardner had been doing it for something like close to 20 years. The ABC plan and he was so thrilled to realize how much money it saved and that during Covid you had a lot of capital saved that he was able to live from.

During that <unk>.

Terrific time period in the first.

First half of 2020.

But I just think that we maintain that level, but it's a problem because it drives up your expense ratios and otherwise you have to subsidize those expense ratios to be price competitive.

And so we've tried to give you a densification will slide here to show you that if the average account size is $40000.

You have assets here as Youre seeing assets under management are $60 million.

And then you can get to a breakeven depending on what fees or charges, we know for the Etfs the breakeven to pay at 60 basis points.

At least $40 million to break even on paying your legal bills and your audit bills, but not yet funded investment advisory you need over $100 million to start to pay those expenses.

Hi.

So that when youre dealing with the ETF Theres no theres no transferring agency fee or expense and that expense can really drive up the expense ratio and when we advocated 10% waiting in gold and if someone has $100000 portfolio that means us only $10000 invested in the gold funds.

And that basically means is going to have a higher expense ratio unless we guarantee and cap. The expenses. So we have created caps on the funds, but still they are high on a relative basis, because we do have a very strong program for that retail investor. In addition to the institutional investor.

Next please.

So grow.

As of <unk> <unk> seven you can see $3 17, two 9 billion quarterly average assets $4 4 million in quarterly operating revenues.

So how do you figure out what the value is on an asset management company, it's really quite simple and easy to do I know people that are drowned loading everyday your assets and doing a rough estimation, but this is a simple of looking at the Etfs. So if we have $100 million.

At 60 basis points is going to throw off $600000 to U S. Global at $2 billion is going to throw up $12 million at $3 billion is going to throw up $18 million. So what's your expenses deducted from the $80 million and Thats roughly what your cash flow because of gross margin is going to be that's the E.

<unk> way and how this asset management business is valued on a daily basis, you can see the reset button is taking place now let me give you some granularity on U S. Global in the next couple of visuals.

But the grow assets decline with the broader markets as you saw in March of this year of $4 1 billion.

In June and then in September we had that big selloff in all asset classes and redemptions across the board for the fund industry.

Both global domestic the only asset classes saw fund flows going into or money market funds.

So how did you determine earnings so we showed you.

60 basis points of your assets give you your operational cash flow and earnings, but then we make investments and we've had some great wins over the time period and it can have a big swing positively negatively with mark to market or investment earnings at each quarter Youre public holdings, They go up or down and you have been doing.

Analysis of that and they can have a great volatility to your earnings. So Warren Buffett says you should just focus on our company's operational earnings.

There are investments are long term investments and it just creates short term noise, but I think it's important for you to understand at U S. Global we have.

Healthy operational earnings and we also have investment earnings.

So how does this mark to market of investments and how could it impact of investments we make disclosure to this and this is giving you an idea at the end of September .

The equity value of fair value.

$16 million and hypothetical up 25% or down 25% what can it do it can have a swing plus or minus $3 million, which would then have an overall impact.

And then we have <unk>.

Options on.

The warrants, which are basic and option on high blockchain and so that can also impact up or down for simplicity here showing a million dollars. So this is important for investors to recognize is does create short term noise, but it's better to focus on the health and growth of our operational business model.

So this is another visual to highlight to you that we saw in March we started the big sell off taking place in April May and June and July and there was an uptick in August and then a big plunge again in September with rising interest rates.

Globally. So this is.

We've experienced that too with our funds and that therefore, if our funds go down with the overall market. Our 60 basis points of revenue is going to go down and we're going to have less operational income and thats makes it simple to understand what drives U S global.

Next please.

Domestic equity mutual funds saw redemptions I mentioned this earlier.

As you can see it and it was money market funds that had a positive flow.

Operating income.

$2 9 billion.

As you can see.

How this had an impact on our on our business model, which our CFO , Lisa <unk> going to give you more granularity on.

Earnings per share of quarterly 24 minus <unk> with the sell off then up <unk>.

And then we made a penny for this last quarter whats I'm really thrilled about.

Because it's been it was a very difficult quarter for many reasons.

This is give you another sort of idea that what drives the performance, it's gross stock versus jets.

Times, we follow the price of gold gold funds and other times, we follow Jets and other times, we have followed the crypto space in particular, the performance of Hive blockchain, but since most of our investment in Hive blockchain has been a convertible note, which we've been.

Getting back about $750000 of principal every quarter used to be $15 million is now just under $10 million plus we get 8% on the principal and each quarter, it's being down being paid off.

So it doesn't have the movement, we do have options through the warrants on a high but it's not as significant as it was several years ago. So the big driver here is jets and we can see here.

That jets.

You can see the decline in jets was in U S global the difference here.

But what's interesting is those numbers.

Is that jets to start to do better.

And our rebound coming out of September hasnt been so great and I was questioning why I wonder why why is that not sold.

So what really is.

To drive that.

We compare ourselves to the Ishares transportation ETF now that Etfs. It has trains and trucks and airlines also so the trains and trucks as you can see they had a lot of redemptions much earlier in April and and they basically been going sideways.

Since July we held our ground much stronger and only recently that we see the sell off and this is basically saying the number of shares outstanding.

ETF fell down to just around the $15 range, but now is pushing back up towards 2000 and has had a pump, but the big inflows have not come in we've had some creates but not the big inflows. So it appears to me that Thats one reason.

Grow is not sort of had this big bump and we also had the big sell off in crypto and the psychology around that.

Audience of sentiment negative sentiment could have impact this year in the past short, while but we just continue to buy back stock in down days Thats all.

We will continue to do.

So our capital strategy is managed expectations for new product launches managed to preserve cash for future growth opportunities and market corrections in and also the potential for acquisitions and strategically buy back stock using our algorithm as I've mentioned several times and down days in and discuss the reviewed with the board on a regular basis is how we.

Run the business.

So this is showing you the number of buybacks.

Can see.

Going into June .

And in September .

It's over a decline, but it was up substantially from the previous year.

So the compensation structure employees base salaries, historically had been modest employee bonuses are tied directly to individual teams individuals' and team results my compensation as CEO is based on.

Cash flow free cash flow realized gains from investments nothing this potential or paper that has to be something that's been crystallized.

And as.

Investments could decline and there is no realized gains than any kind of compensation for myself as always decline during those time periods vice versa in a surging market in surgery capital gains and searching cash flow I've gotten bigger bonuses for that.

Now I'm going to turn it over to Lisa <unk>.

Thank you Frank Good morning, first I'll start with our financial highlights on slide 34.

Quarterly average assets under management with $2 9 million.

And our operating revenues were $4 four in March.

Our operating margin was 36%.

Beginning on page 35, we see a quarter quarterly operating revenues and expenses total operating revenues were $4 4 million for the quarter, which was a decrease of $2 1 million or 32% from the $6 5 million in the same quarter last year.

The decrease as Frank discussed was primarily due to a decrease in average assets under management.

As you can see our operating expenses decreased 23%.

Mainly engaged employee compensation, decreasing 709000, or 39%, primarily due to decrease in bonuses and the amortization and employee stock options and the prior period.

General and administrative expenses decreased 94000 or 6%.

Lower directors' fees related to amortization of stock options in the prior period.

On slide 36, we see our operating income for the quarter ended September 32022, and $1 6 million compared to $2 9 million in the same quarter last year.

Other loss for the quarter was.

$1 4 million compared to other operating income of 37000 in prior year.

Teams are engaging our realized gains in the current period versus realized gains in the prior period somewhat offset by a decrease in unrealized losses in the current period.

Net income after taxes for the quarter was 118000 or a penny per share, which is a decrease of $2 3 million compared to net income of $2 4 million or <unk> 16 per share.

Quarter for fiscal year 2020.

Moving to page 37.

We still have a strong balance sheet and includes a high level of cash and investments cash and cash equivalents was approximately $28 3 million at September 32022.

With an increase of approximately $1 million of 4% since June 2020 Cam.

Slide 38, you can see the value of our non current investments is approximately $18 7 million.

Slide 39, our liabilities decreased from June <unk>.

By approximately 543000 and on Slide 40, you can see our stockholders' equity detail.

At September 32022, the company had a net working capital of $34 6 million, an increase of 737000 or 18% since June and our current ratio at $10 six to one.

I'll turn it over to Hal.

Thank you Lisa.

Alright on the first slide in my section, we are we'd like to do a breakdown of our mutual fund assets. So as you can see here a majority of those are in emerging markets and natural resources, while 32% are in international equity and fixed income and similarly, if you look at asset by distribution channel you can see that 85% came from retail.

While 15% institutional.

On the next slide I would like to point out that our jets ETF.

We're very happy about how it's doing and particularly about the TSA numbers that we track aimed finally recovered to pre pandemic levels and on top of that many of the top carriers and jets have posted positive numbers for the last quarter.

Also for those who are not aware the jets ETF is indeed lifted on various other exchanges, which includes Mexico and Peru and also we have come out with a UCITS product projects and we work hand in hand to sell that product with the <unk> ETF group out of Europe .

Moving onto the next slide.

Happy to report that we just attended the annual <unk> Summit in New York, Just last week, where our marketing team was awarded with two more Star Award for Investor Education, bringing our total to 92 over the years. This year in particular, we were awarded for Investor digital experience and that was due to the.

Nine of our web site, you expanded dot com as well as for overall Investor Education and that works for all of our crypto currency content from <unk> graphics and videos.

On the next slide I want to remind everyone that we will be hosting a webinar pretty soon after Thanksgiving, it's going to be on Monday December 12.

This webinar will focus on the gold market and in particular, our go AE ETS. So if you're interested in signing up for that.

It is an E mail.

<unk> dot com and I can get you the appropriate registration link.

On the next slide don't forget that our educational content is not only come in the form of the Frank talk blog or the Investor Alert newsletter, we love educating our shareholders through video content as well to make sure you're subscribed to our Youtube page to get video update on everything from God to airlines and to the luxury industry.

Three.

And lastly, as we wrap up today's presentation I do want to remind everyone that we do share a majority of our new content as well as our announcements about upcoming events across all of our social media platform. It just to be sure to check does that when you get a chance.

And just as a reminder to our audience. If you have any questions today. Please E mail.

And so at <unk> Dot com.

And this will conclude our webcast and thank you for joining us.