Q4 2019 Earnings Call
The weapon or will begin shortly please remain on the line.
The broadcasters now starting all attendees are in listen only mode.
Good morning, and thank you for joining us today for our webcast announcing U.S. global investors' results for fiscal year 2019, I'm Holly show themselves. If you have any questions. During the webcast you can enter them in the questions area of the control panel sidebar, which is normally to the right of your screen.
Also you may download a PDF of today's slides by clicking on the Red Handout button.
The presenters for today's program are Frank Holmes, U.S Global Investors', CEO , and Chief Investment Officer, Lisa Callicotte, Chief Financial Officer, and myself, Holly Schoenfeld marketing and public relations manager.
During this webcast we may make forward looking statements about our relative business outlook any forward looking statements and all other statements made during this webcast that don't pertain to historical facts are subject to risks and uncertainties that may materially affect actual results. Please refer to our press release and corresponding Form 10-K 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 and moving on to slide four quickly about U.S global investors.
We are in innovative investment manager with vast experience in global markets and specialized sectors founded as an investment club. The company became a registered investment advisor in 1968 and has a longstanding history of global investing and launching first of their kind investment products, including the first no load Gold fund U.S global is well known for expertise in gold and precious metals natural resources and emerging markets.
And now let's go to Frank Holmes, CEO and CIO for an overview of the period Frank.
Thank you Holly.
When you look at the volatility of gross stock. The two factors is that drives the 30 years. It appears the history of the company our fund flows.
Our very significant the direction of the gold has a big impact and now it's become also more investments, which we'll talk about that Lisa Callicotte, our CFO will explain.
Oh, some accounting changes have created volatility in our revenues and our cash flow are seeing income statements.
Sort of flows through and and this event has also taken place for other companies, but it's really the direction of gold has been significant fund flows.
Is the real underpinning and those investments and so in that context, we strive to be that go to stock for exposure to emerging markets yourselves and gold no doubt and digital currencies were debt free we have a strong balance sheet with reflexive cost structure and monthly dividend return on equity discipline, we've been through very very challenging times. Our next slide please and this whole industry you that I'm not going to comment on that of the mutual fund industry as a whole, but I want to take this moment. During this presentation to think that the Royce funds parent and other people that have been the shareholders in and maintain in our company.
In particular.
The other four people are in the mutual fund World. There's also experiences are challenges on the next slide please.
So inconsistent paid the dividend for 10 years, our yield is modest and Ah we continue to.
Work on every day can do to improve our revenue on our cash flow to maintain this discipline not being able to pay dividend next please.
The board approved the repurchase of up to 2.75 million almost any common stock in open market through calendar year 2019, and during the fiscal year 2019, the company repurchased 20575 shares of class a using the cash of approximately $24000. We may be suspended or discontinued any time, what's important for investors is that it's a quantum model that basically buys on.
X percentage of dollars on and wide decline in the stock.
And basically only buys when there's on a on a big down day, so thats been the discipline of stock repurchase next please.
So the balance sheet.
It has no debt and you can see Oh, the assets, how they've come up and gone down and but deal I guess the big part there is that it's been a trend down our caution funding the business and looking for acquisitions and also look for investments and looking for a pivot change in this mutual fund world and that's one reason why we will launch some ats, which I'll comment on but it's it's been a real challenge and so we have to be really conscientious and that's not going to comment on some of the cost savings we've been doing in trying to maintain that.
<unk> cash position and rebuild it next please.
So earnings per share of the quarterly fourth quarter ended June Thirtyth as just shows you.
The volatility it basically do the cryptocurrency is I had a big impact and it's also the counting so in the old days was to make investments and they would be on our balance sheet until we sold them and today everything goes basically mark to market and I think that that's just something that's that's increased the volatility and I think we're going to let Lisa talk more about those accounting changes in a few minutes next please.
So earnings per share as you can see it's just really a painful to see that a portion of that is from operating losses.
And to try to deal with those operating losses.
We closed down our top performing GTF in Canada, which is a a goal.
Product, which is a mere also go a year, which is listed on the New York Stock Exchange. It's just the industry in Canada is controlled by five banks and the ability to get fund flows even though we did have a fair amount of marketing and.
It's just really a challenge and the cost for putting a product like that on the shelf.
It cost you almost a thousand dollars a day you guys pick up is just keeping it alive and so part of our our strategy going forward is if the product is not going to work out then we just have to cut it ends just starts cutting costs next please.
So sort of visual of the average assets under management are they seem to have been able to sign a base and the positive part for US is that we are getting recognition for our top performing.
A gold equity ETF Goa you.
And so we're starting to see some great fund flows inspur Donnelly because of performance next please.
So let's talk about an industry an industry. That's this is really seeing a difficult time of outflows from domestic equity funds have gone says some have gone to the ETF world as you can see here and sort of gone some other mutual funds or just low costs and and most of those fund flows are not based on performance are based on.
Just whose chico's has been perceived as best and then there's been other several rules that have come out in the past five years. The interpretation of the fiduciary rule, which was delayed and being implemented but this that into that thought process of department of labor coming out with the.
This fiduciary rule and the conflict with the FCC and the debate.
What it did is a trigger.
Any fun family that had a top half cost structure got thrown off platforms.
Right across the board because it was perceived that fund expenses would trigger litigation and so therefore it was a.
Rational reason for the major banks platforms to kick you out in the hard part for US is that we have a huge audience of direct small gold investors, because we advocate a 10% waiting in gold well if they have a 50000 more portfolio, that's only $5000 and.
This expensive when you add up all the cost and compliance and regulatory et cetera.
To maintain for a 5000 dollar accounts has improved 50000 dollar account and so that gives us higher expense ratios and that has an impact on the decision on these platforms. So that has cost us over the past several years assets, having to redeem and and so whats. The positive part is that we are in recent surveys with MTF trends. So even EPS was only based on most of the fund flows totally based on a hot theme, but really the majority of the fumbles was who is cheapest was perceived as best however, they are a space seems to now be focused more on both formats and performance is a more significant factor in that decision, making and when we look at our gold equity ETF. It's about the same expenses as the GDX and GDX J and the Sprats et cetera, but is performance is.
A proven itself in the past two years of doing what the back tested model suggested it would do and as we all know that past performance is no guarantee of future results, but before you go and launch anything you have to do rigorous back testing like you do in the metal medical profession, or you do in aeronautical profession assist could tremendous testing the.
The resiliency of your idea of your model and so we're happy to say that both are just CTF was our first launch.
Has done exactly what it said that sort of quantum mental approach and the color smart data to where sensors factors were picking stocks, but the overall portfolio construction allowed us to create inspired US would go away you the 30% or three royalty companies and the rest are based on factors that are much more appreciated by the journalists are not just a bold fund manager and the narrative in the gold space I used to always be a whose cheap us on a price to book or any b.
However, in today's world with Quants, driving something like 70% of all trading decisions.
From high frequency research the hybrid to see trading it is looking at other factors and that's what we basically created our proprietary algorithm for launching of Goa, you and we don't feel very confident that its a superior product as demonstrated it and we believe it has lots of resiliency going forward.
And in this gold market. This is a very bullish sign which we had to have to replenish our asset base unless you go and acquire assets and we're seeing that we're seeing a gold assets like talk little from where it was sold at something like close to 200 basis points, whereas a USA up the street became so exhausted from all the regulatory bodies to how to cater to and the costs and and the potential for bad reputation et cetera. They got out of the business totally and they sold there's four.
Southern 80, some odd basis points their assets. So the gold assets do command, a higher valuation and the biggest part as you'd have to perform.
Next please.
So as regulations increased net sales slow you are seeing this sales of regulated opened in long term funds in the United States as slow substantially and 2018, there was a surge in 2017 with a buoyant market, which was predominately the.
Indexes are cheap indexes, but even that quickly reverse itself next please.
So this is another important visual is showing you that the number of mutual fund sponsors are diminishing so either there just.
Unwinding merging their funds or they're liquidating their funds and the leading the industry and those new entrants that are coming in are there's very few that come into a mutual fund products.
They do come in its through F type of platform and and then this is just the.
Yeah, I like to be as positive and on an optimist, but to show you that the.
Just the burden of what's going on in the industry as a whole and how we have to navigate a ship within that industry next please.
This is the number of mutual funds entering and exiting the industry and this is liquidated as you can see the just the cost im trying to acquire another fun group is very very expensive and so several fund groups for 100 $100 million, especially liquidated and.
And so the insurance industry, what we've seen is that alright east. The premium is paid for our A's is because they are not experiencing these 20% redemptions a year a phone calls going out it's about 2%. So the valuations on our A's have gone up substantially and is easier and cheaper to go by and are a.
Which has more stable funds flows clients coming going than the mutual fund arena, So mutual fund valuation metrics for acquisitions et cetera have dropped.
Substantially except for the recent total gold assets.
The next visual.
So you know even during market rise domestic funds lost ground and net new cash flow and domestic equity mutual funds in 2818 versus the S&P 500 is trying to put this in context, what took place in December of last year and what our Big Challenge has been is that we have a.
A model that says that we can earn extra basis points. If we all perform the benchmark that's in our prospectus by 5% over the rolling 12 month period, but however, if we don't perform it then we have to get back money, if we liked by 5%.
That we have to get back money and Thats been a real challenge they have had with the with the performance and the active end of the market.
And as a couple of things that are sort of industry specific that have impacted in other it's just about executing off the models how fast we execute so we are revisiting and looking at what do we do in that in that scope of that because it's a lot of money for us.
In a small complex and.
If we were not lagging and so many of the funds I think the number is is.
On average probably 50000, a month, it's been costing it's improving slightly in the past month or so, but I think it's a big issue than internally I'm very focused on working on.
Next please.
So going to you.
It's the Darling right now you know it's the assets are higher than what we did this slide we had another five creates yesterday doesn't reflect this.
So we're having a strong growth in that close to $5 million. This the money came in.
Yesterday, and so we've seen this 84% increase in assets since June of this year and I think the big part was just a recognition that the models that we launched.
It has teeth to it and.
And this sort of concept of looking at five factors.
In our proprietary model.
Our able to pick gold stocks better I also believe the circle the concentrated portfolio.
And so I'm really thrilled about it I think that when you look at the total number of gold equity Etfs it over $10 billion.
About a third of them are because address yarns triple Bull and bear.
That goes into them. So love the speculators have knock on junior mining going in specially with the Triple Bull.
In this sort of cycle here.
But.
For us, it's we have a better product and I think weve applied our skill set from active fund managers and looking for those three factors for gold producers. These are not exploration companies, but go producers and.
I think that this is a big in dollar fund.
It's just a better product for investors because as intelligently design and its intelligently rebalancing recalibrating the stocks in this portfolio every quarter. This time last year, we end up having our biggest turn open up and they go away you why was that because banks are left the industry. The gold fund business and it's interesting for us because we do an analysis last year is our goal funnel perform vanguard for 135, and 10 years, but it didnt matter because vanguard had a cheaper fund expense ratio and the psychology was that it's not performance is important as cheap as it is important and.
And even with that with their biggest those assets they got out of having a gold funds and and so that allowed us as they dump great quality gold stocks to be able to reposition go a year to buy them inexpensively and it's helped our alpha creation and next please.
So there is going to use GTF I'm thrilled about it.
It's up 60% over one year period, it's all performed.
All the active gold fund managers, who I know in the industry.
Could change by day to day or week to week, but it's just really importantly, as far outperformed the GDX and GDX, particularly the GDX J.
Year to date and over one and two years.
It's all performed in and back testing said it was suggested that sort of would do and I'm happy to report. It has done that and now is getting credibility and fund flows next please.
So what's driving.
Hello, there is volatility and I'd like to speak about these macro forces that chembio actually known as China, India or 40% of the world's population.
It May drive a big part of the love trade for gold because 60% of all demand for gold is love that Indian women have six times more gold that a where there's in fort Knox and every time. His wedding season is coming up there is a new year, there's a birthday, especially in China.
That's a year of the Tigers together.
You get a little goal Tiger 24, karat and the wealthier the foundries are they buy more grams of gold for wedding season in India or they buy a bigger gold tiger and its a though to me is a remarkable to see this sort of fluidness that takes place all through this region and southeast Asia and the Middle East our big buyers of gold for Love next visual.
It's a sort of fear trade and what's interesting is for China to make their currency more valuable and have credibility and they've been increasing reserves for eight straight years basically eight straight months now, but they have been doing it for like a decade in China. It used to be the price taker that is a London was the price maker with a London fix every day, but after the 2008 2009, this or drama crisis that we went through that switch. So now China is the price maker and interesting enough China's consistently been buying all the gold consumed in the country in other countries the largest gold producer in the world and they buy outside the world They take in gold.
And as a mechanism for them to basically trade support behind their their fee at money and so I think that that's an important part of that fear trade, that's 40% of the equation for demand for gold and it continues next please.
And we've seen something else.
A seismic shift in gold.
Countries like Poland, and we increased our holdings by 228 tons last year, and Turkey increased their holdings and when Turkey had difficulties with the currency crisis short term they blew out some gold and.
Hungary buys you find out those two months later and so you're seeing a it's just basically increase in Turkey has done everything with the 16% interest rates to try to stop their currency from being devalued, they have 16% inflation or something you're done with their paper money machinery is they're buying goal im seeing enough the Swiss and the Japanese have not been buying gold with this paper printing of zero interest rates are or they are quanta really call the quality.
Quanta 20 easing.
Driven by the stock market. So they are a big shareholders and their own stock market through the tee up business. So I think that that's interesting that they're all trying to buy real assets are and sort of more develops as Japan is a very developed market and sodas Swiss have very substantial big cap stocks.
I think it's it's an interesting shift that's taken place in the past 10 years next please.
So central banks bought a record amount of gold in fiscal half of 2019, Russia 100 tons, China 74 tons Sgas Ucaas extend 24 tons and others, India, Ecuador, Colombia et cetera. So we're seeing a trend of increasing exposure to gold as an asset class and as a currency because gold is remembered its important remember its a fourth most liquid asset class in the world.
So it's a form of money. In addition, the jewelry and has the dual capacity to be both especially in Asia and if you read the history books. The Vietnamese people. The boat people. They go first they were able to have gold and gold was comfort over some because of 24 karat becomes jewelry it becomes the ticket insurance policy to get out.
Out of Vietnam, and we've seen this also recently in Syria that Syria women first to get out we're able to by the way of gold.
Next please.
So is this understanding of the gold fear trade is so important is a simple by normal model gives us huge global attention around the world not just in America between monetary and fiscal policies.
And there's a new faces that monetary policy can do everything and the socialist ideals motor. The E. U is basically increased regulations, which is an indirect form of taxation just like tariff wars are a taxation on the flow of funds and capital.
And so you are seeing is tencent and an imbalance so to try to spur economic activity interest rates fall to zero or negative government goes out to raise money.
Investors don't buyers. So then the government buys back its own that make great money and we're talking about trillions of dollars now and we're talking about trillions of dollars that have negative real interest rates and that is the key factor for driving gold and there is the lack of will draw corporate taxes individual taxes. There is a lack of willing to streamline regulations and there's all these cute buzzwords that the EU likes to come up with cold harmonization and as harmony that means in the us it increases regulations and taxation.
To comply with the EU and so.
Push back against that and and that's why we have in the past two days in New York City at Cod.
Cornerstone the macro conference and.
It's really interesting for me to secure corn funds and listen to other people whether themes on what's happening globally and attention thats taking place.
So I think for me.
It has been very insightful and especially we listened to fill Fisher yesterday Dr., Phil Fisher, who is the head of the Israeli.
The Federal Reserve and then it was a chair here in the US it really amazing when I asked him about goal and why central banks as you know why they're all buying goal and is responsible gold goes up and down.
Any basically trying to evade the base of and not answer the question and you are seeing that more conservative.
Fiscally conservative Central bankers are the ones, who is pushing the button to buy gold.
Next please.
So the trade wars earlier this has impacted GDP growth.
Yes, fed policy and trade war, but really it's important on this visual really it's more important to have the China versus the U.S. So why is that.
Well I mentioned earlier that India is 40% of the world's population and so it's very important to follow them for consumption because people have to eat every day and people buy gifts everyday and so that's important when you look at the global scene, but when you look at global trade, it's really the us and China, 40% of that global trade as these two countries and so when they are in this sort of spot about trying to harmonize tariffs and basically are the USS saying that you want to sell into our 14 three of our economy you have to drop your tariffs and give us the same tariffs.
Less friction going into your country and the Chinese are basically not been very co-operative now we get a lot of drama as stealing our technology and IP.
Intellectual capital et cetera, but it's real basic line is this is an unlevel, playing field and the flow of products and services going back and forth and the game changer press conferences. They said the positive thing instead about Trump was was that he's shown that you can challenge the world and the globalization did not rise all boats and that there has to be tweaks to the globalization. This big global trade and it did help lift a lot of people out of poverty, but it was not ubiquitous and so other people those disruptions and now they are trying to fine tune that and and so the fact that what's happened is that no. One wants to take that leadership and their sort of group think between the Gtwenty finance ministers and the G 20 central bankers.
Some say collusion.
But there was some thought process. So this all the stuff Im always want talk as much about this is impacting.
Economic growth, it's impacting negative news is actually positive because rates are going to have to fall to us like the following other places the worlds and that drives up the gold price. So the trade war has impacted GDP growth and in fact in Denmark and they pay you to take note of mortgage is this how severe this idea to try to stimulate economic growth.
Next please.
So flaishon is bigger than the CPR reports I've written about this many times.
And this is the classic data point that if you look at the cost of products at Walmart and target, which is basically the bottom half of the economic spectrum in America, and the middle class the upper middle class with target.
Inflation is running at 5% not 1.8. So this means basically says that your government bonds are trading at a massive discount.
Negative real interest rates next please.
So its goal after provides the has during downturns is break deleo talks about it's interesting that the best performing asset class for the past 20 years writes a real asset reach and they pay dividends. So as rates have been falling then you'll see goal is the second best performing asset class and and reach so it's to me is fascinating to see that people still buy into the recent our sector. The S&P 500, a couple of years ago. We went from 10 to 11 sectors and.
And gold is there. It is you know it's one of those great asset classes, our rig values the largest hedge fund in the world and the APA case between six and 10% and you recalibrate.
Rebalance your portfolio of goal as an asset class next please.
So gold equities are cheap.
And this to me is one of those great visuals to show you that when we go look at this time period over the past 10 years.
The the gold index, the is minus 12% and bullion is plus 66%.
All the royalty companies like the Franco Nevada is have done exceptionally well over that 10 year period because of the superior business model and that's what makes a go a unique because 30% our royalty companies.
And they have.
A better business model. So what is really showing you there's lots of upside in the gold equities on this cycle nestle's.
So we made a strategic investment in both spot and the reason for that is artificial intelligence. The frackers change the oil industry dynamics and I believe that AI machine learning is going to change a gold spot has nine phds.
In a Phd in Silicon Valley is worth about $5 billion for fundraising so that makes it worth 45 million us dollars and the market cap is $20 million. So it's very inexpensive its offer when we bought it is important to as a junior micro cap gold stock when really it's a technology stocks that the services the industry and they do with this call a swap that they will make an investment if they use their services. So that they also get equity in these positions and so I'm I'm thrilled to be involved with all these really smart young people that are applying AI and yesterday at the.
Cornerstone conference.
One of the CV Cohen, Sir has one point 72 their head of head of Quanta investing basically came out and talked about how it's been such a significant part of how they're growing is applying machine learning as a tool as a tool like use of Bloomberg to look at stock courses stock screens and information that they are using Kwan data mining and this is the leading company.
With contracts from major mining companies done to junior. So this has been an important investments. However in the short term it's hurt our overall is the decline so it hurts our.
Income, which Lisa can talk about it.
Income statement, but not real income as we call. It there's no realized loss.
So the validated technology, how Charles the second largest.
Your mining company in.
Peru listen learn stock exchange as CFO is on the board and has very strong institutional sponsorship theyre all shareholders, along with ourselves likes Eric sponsor major shareholder Rob Mcewen as a major shareholder Elliott management through a triple play there there will be a company in Canada. They are they're also a significant shareholder. So I think you, but interesting sponsorship in this industry and I think that goes part is to be a huge game changer for the exploration business.
And so as I said.
It's let's say six but as nine phds.
And 12 analysts next visual please.
So it's been recommended as a nano cap stock using AI to disrupt the $2 billion gold mining sector. There's been no major discoveries next plays in this space and that's something that's really important there is no significant 3 million ounce discovery because all the low hanging fruit has been picked off and just like the energy space. The Frackers, where the game changers and I believe that goes spark can be the significant game changer in the exploration game and that gives it so when they take back shares and take back a wealthy on a new exploration area, they get huge upside potential.
But in that whole scheme of things, which will be important for our investors to recognize this DNA of volatility and it drives growth stock.
And as you can see the DNA of volatility off.
The S&P.
Is a gold bullion.
For one year rolling going back 10 years, it's a non event for a goal to be 17% as soon as the S&P is plus or minus 11%.
It's very surprising to me.
That number because it was always very very similar and.
And so I'll get that double check for me I said that.
Rolling period, and then when I look at the emerging markets, they've always twice with the S&P 500 span.
In gold stocks have always been three to four times the volatility of bullion.
What's also very volatile oil prices.
Next please.
Thanks.
Holly.
And this is still your section but.
Why do you want to talk about insights zone that where are you working on speaking at conferences and ER from television or going on to tell the story of which hop in global markets et cetera next please.
[noise]. So the one day volatility as you can see for bullying. The S&P are approximately the same whereas bequeath xerium substantially greater and ER and there's still yet to be an ETF that allows you to buy big coin. The greatest concern. We discovered a couple of years ago was AML anti money laundering risks et cetera, and so thats why we made a.
Spent in high block chain, which has been a roller coaster event next please.
So a major events are moving the price a bit coin. It went through this a couple of years ago from a 7000 up to 19000 down to 3000 now it's back to 10400 I, it's interesting that Pete when the Chicago Merck on the Chicago Board came up with commodities exchange chemo with their futures market that was the pekin bitcoin and the bottom took place when we had.
JP Morgan was kept knocking deploying as about investment and that bottom took place when they launched their stable claim this year in February and we see it in a modest.
So climb at the beginning of that to start to accelerate and then we had Facebook announce their global Libra coined and that we saw a big point than explode on the upside. So it's interesting for me to share with all of you is that both Facebook and Google stopped, allowing any type of advertising on their platforms, well Facebook was busy creating their own stable coin and JP Morgan kept knocking digital money well until they came over their stable point. So these are positive trends are taking place in that kryptos pace next please.
And what's important for me recognizing is this the number of wallet users and with this means is basically the number of people opening the accounts and buying a bitcoin so as <expletive> when prices fell.
It Didnt really just her new speculators investors coming in and buying the coin and it's a really unleveraged marketplace.
When you look at it overall is put on the a cash economy and.
And to me I saw this in the gold space that in 2003.
Until recently 2002 to 2016, there were some great goal corrections and even though the gold sold off in the gold funds sold off than funds kept coming into the gold funds. There was actually net fund flows and so investors can averaging down for the next wave up and that usually lead to what it did was goal went from 275 too close to 904 corrective and then a win onset 19 hundreds. So it's a very positive sign in the crypto space as stable coins keep becoming out and the number of wallet users keeps rising next please.
So last year. This winter was two years ago, we launched a pipe as I said it was a rollercoaster ride we made a strategic investment and it's been very volatile too.
Our overall gross stock because the underlying stock and cryptocurrency in hives seems too. It was correlating are very tightly with checkpoint and in theory in particular in theory and price action almost on a daily basis. It became.
A proxy for those who did not want to open a wallet and trade between Threem directly.
Hi became a proxy for investors.
Next please.
It's so hard to put 2.0 is growing as coin inventory and we win that Weve sold and bought and so we assess opportunities, but just be the bloodstream technology ecosystem, and we evaluate execute accretive M&A deals, but the next visual phase, but we have been consumed this year, we had a.
A proxy battle.
We had great concerns with our largest investor who earned the bulk of their shares through a swap at the beginning of the creation of.
Hi, Andy.
And so what we're really transpire when I became the interim CEO was transparency.
The GM piece of the World, who took the company public and help raise $200 million.
The research analysts, we kept talking about lack of transparency on costs et cetera, and so this is Marty as a private company and the man's Premier had big turnover and change and they were just basically so were a private company and they were going to give us the transparency that we needed to raise money with or to make investors feel.
That we weren't being gouged for pricing.
And and that led to a big dispute and but we prevailed.
We resolved at the end of June we had a peace and prosperity agreement and.
And and so now we've seen high this been sold down was sold down in particular came about that.
Genesis sold a lot of stock in the month of July and and then we've had delays.
And getting our audits out and done and the reason for that big part of this whole delay is new accounting rules Inc. in Canada for any public block chain Crypto company came out the accounting Board of Canada made these pronouncements.
The fourth quarter of last year and most of the companies have their year end was in December ours was March so we didnt get this notice that all the major audit firms, where basically pushed the drop audits on and mid cap audit firms on anything was block chain and so those turmoil in the industry. We didn't think we are going to go through it.
In February we got a letter that we had to find new auditors. So we had to go through that process at the latest by six weeks.
We were able to secure a firm that has great expertise now in this space and and dominates audit on the micro cap stocks in Canada. So Davidson partner. So there is a great firm and.
The rigorously you're doing the audit and hopefully we get it notes as soon as possible.
In this month of July .
As we every two weeks to make announcements.
That we're we're making progress on this and so I think that thats been sort of a headwind until we get there so and once that's done that's audits done than I think that recalibrates itself hi.
Hi is producing again in.
Sweden, and so we are a major hearing producer globally and we are taking over the facilities that transition is taking several months because of the technology, the technology and except from hardware and software, but we've got revenue and we've got cash flow and that's very positive for us as we go into being able to provide more transparency for investors and Genesis go on and do what they want to do as a private company and we can go on to be able to be more independent and be able to get the transparency that investors and brokers are requiring us to provide next please.
Lisa.
Thank you Frank.
Good morning.
I summarize our results of operations I'd like to discuss an accounting pronouncement that we adopted this year.
Slide 44, now it's changing the accounting rules related to investments.
That have and are expected to continue to cause our earnings to be more volatile.
We adopted accounting standard ask you 2016 gas one recognition and measurement of financial assets and financial liability effective July one 2018.
This amended the guided kind of classification and measurement have investments in equity security and certain disclosures.
Starting this fiscal year some of our corporate investment were accounted for differently than in the past and its no longer and available for sale classification for equity securities as part of the adoption and if the standard we may require a cumulative effect I just meant to reclassify 3.1 million and unrealized net gains and a million and related deferred tax expense out of accumulated comprehensive income enhancing retained earnings.
Effective July 1st 2018, unrealized changes in our fair value of these investments formerly classified as available for sale I reported earnings rather than equity. This includes any changes in the market value of our investment behind.
[noise] that related unrealized losses on securities, formerly classified as a FX for the year June 20th 2019, and with approximately $2 million and this would have been in comprehensive income in the prior year, but this year was included any ethylene Inca.
Due to the accounting change it doesn't matter if the investments are short or long term in nature. The change in market value will be reported quarterly coughing in hand to be more volatile.
Slide 45 summarizes our investment in high as of June Thirtyth 2019, we own 10 million shares of high which is approximately 3.1% of the outstanding shares and I had a value of $3.6 million.
Now I'll discuss the results of operation for fiscal year 2019.
Beginning on Slide 46 recorded total operating revenues of 4.9 million for the year. This is a decrease of 1.3 million or 22% and the 6.3 million and 2018.
This is primarily due to a decrease in assets under management related to.
Market appreciation and shareholder redemption.
The decrease was slightly offset by an increase in Galileo performance fees.
Operating expenses for the year were $7.9 million, a decrease of 668000 or 8% primarily for the following reason employee compensation and benefits decreased 852000, or 20% mainly due to decreases in bonuses.
And this decrease was somewhat offset by an increase in general and administrative expenses of 175000 or 5%.
DNA increase is due to increases in Canadian fund expenses and consulting fees.
We see that our operating loss for fiscal year 2019 is $3 million.
On slide 27, we see that other income was a loss of $1.5 million in fiscal year 2019 in prior year, we had other income of 3.2 million.
Investment income decreased $3.1 million compared to fiscal year 2018, primarily due to net unrealized losses on investments of $1.8 million compared to the prior year net unrealized gains of 742000.
Also a reduction in investment and dividend income of 540000 due to certain interest producing investments being redeemed or paid off.
The investment loss in the current year included approximately 2 million of unrealized losses on securities formerly classified as available for sale, which would have previously been included in other comprehensive income.
Income from equity method investments also decrease.
From income of 1.6 million last year to 23000 in the current year.
Net loss attributable to U.S.G.I. after taxes for the year is 3.4 million or a loss of 22 cents per share, which is a decrease of $4 million compared to our net income of 647000 or four cents per share in fiscal year 2018.
Moving to slide 48, we see we still have a strong balance sheet, which includes approximately $17.3 million in cash and restricted securities that combine to make up 73% of our total assets.
And as you can see on slide 29, we still have no long term debt.
The company has a net working capital of $11.6 million and a current ratio of 9.2 to one.
With that I'll turn it over to Holly.
Thank you Lisa.
So as you can see a majority of our mutual fund assets are in emerging markets and natural resources, while 33% our end domestic equities and fixed income.
As for distribution more than three quarters of assets come from retail investors with 18% coming from institutional investors, our sales and marketing efforts have continued to focus on our mutual funds, including those concentrated on gold natural resources and emerging market as well as our exchange traded.
The company and our funds continue to receive an invaluable amount of viral publicity gained through media interview, Frank Holmes often shares his insights with financial outlets like box business Bloomberg Radio and Kitco news just to name a few.
We also continue to receive recommendations by influential financial newsletter writers as well along with the sharing and syndication of our award winning original content by third party publishers the newsletters, how loyal following and received millions of visitors each month.
Frank Holmes CEO blog, Frank talk continues to grow in popularity as well. His commentary is often featured by prominent publications, including Forbes seeking alpha Kitco and equities dot com all with millions of monthly visitors.
One of our core values that you ask level is curiosity to learn and improve we believe that providing educational material to investors is one of many ways to achieve this and some of our widely read pieces include the whats driving energy Handout picture here, along with our fear trade and love trade White paper, both of which are available for download on our website.
Kitco news the biggest gold web site in the world with an audience of over 30 million monthly visitors in partnership with the Street Dot Com continues to feature the gold game show with Frank Holmes Gold market analysis.
Since the shows beginning at 168 episodes have aired.
At quarter end, we like to look at.
The most visited Frank talk blog posts over the last year no matter what year. They were actually written so on this slide you will see that the most visited articles for the one year period or number one the top 10 countries with the largest gold reserve number two the top 10 gold producing countries and number three what does it take to be in the top 1% you can sign up to receive the block for free on our home page.
And all this coverage helps that leverage our brand by reaching millions of readers viewers and potential investors our website U.S. fund dot com, but visited 537000 times from June 2018 through June 2019 by curious investors from all over the world.
You ask global is well known for timely balanced and positive market insight and our thought leadership. The company has been awarded numerous Star Awards by the investment management Education Alliance over the years for excellence in Investor Education and at the end of 2018, we added three more awards, bringing the total to 85 and actually later this month a member of our marketing team will be attending the Star Award for 2019, again, and we hope to come back with additional recognition.
Our subscriber base continues to grow organically and we currently have over 50000 curious investors subscribed to our investment newsletters and our Frank talk blog. We also continue to see a large following across all of our social media platforms.
Investors can sign up at U.S. on Dotcom and join these subscribers who receive the award winning Investor alert newsletter as well as Frank talk.
And as we wrap up today's presentation, we would like to open it up to questions. As a reminder, you can enter your questions and the control panel on your screen. We already have a few come through Frank I'd like to direct this first line to you, which says if the U.S. recession in a bear market is eminent how might that impact grow.
Well the most important part for US is how well does our products grow.
Even though these are kind of small spaces that are we are running out we are able to offset some of our.
Occupancy cost by renting that out so we are keeping our options open and kind of considering additional time.
Great I think that answers that frankly have time for one more question. So I'm going to direct that that you said in the presentation. This morning, you discussed the struggle faced by mutual funds along with the great success of your Guy you each yet and with that in mind do you have plans to shift your focus at all for mutual funds focusing more on that current Dts. Your current ATM lineup, there even knew each other products.
Well I think the the growth of the mutual fund industry is coming through acquisitions and the ability to get organic growth is that you basically have to give away your funds and.
The regulatory burden and cost when I moved to Texas 30 years ago and bought you as global.
The cost of waving all your fees, because we had a money fund we did that with successfully.
It's just too expensive, it's just a.
Outrageously expensive Uh huh.
Exercise and so we're going to focus on specialty products were going to continue to take a look for acquisitions. So I've done in New York is gonna see bankers that specialize boutiques in acquisitions and and look for these types of products or in talking to people yesterday when they go to launch a product I thought it was interesting that they usually get a family office or a hedge fund that puts up at least a $100 million.
Because you can't get on these platforms, unless you have like $50 million and you're trading a million dollars a day of stock. So you are seeing more and more barriers entry within the industry itself.
And that's making a bigger challenge is coming with S. So you have to if we go out with a new product then we have to go get some real sponsors that believe in that vision like luxury goods, which we're looking at the lunch, but it's such a cost to two and it's very expensive and difficult its difficult doing marketing of these products. So a mutual funds.
It's hard to grow organically. So you the best thing is to go and acquire and roll them into your assets and so were pursuing that and be as the focus on.
Going to you it should be a billion dollar product we had lots of creates a yesterday again I'm as I mentioned earlier I'm told were going on other platforms and as good and as we go through 50 million then all of a sudden we'll be on other major platforms across the nation.
And that should propel this particular product to a half a billion dollars now just to give you an idea of the half a billion dollars that would throw off about 3 million of revenue and that would give us a a much more robust.
Cash flow and revenue model that we have compared to today with the mutual funds and so that's where the focus is a that's where our reputation is and and I think that we will maintain that focus we get a rebound in the kryptos and high I I think that that will also be a big benefit for our investments and and hope the gold spot is able to announce some successful investment.
The changes to their financials and makes a stock appreciate so I think we're positioned for this next leg.
But right now most important for the shareholders or what I'm focused on is driving down costs, we've driven them down in Canada, we have to drive them down again, they have to just not lose money period and.
And so on in the U.S. in particular is to grow the assets and I think its EPS growth or mutual funds acquisitions. Thank you, ladies and gentlemen.
Wonderful. Thank you Frank and that concludes U.S. global investors webcast for fiscal year 2019. This presentation will be available on our website at you at time Dot com. Thank you all for your participation today.
Yeah.
[noise] [noise] [noise] [noise].
[noise].
Ooh.