Earnings Labs

U.S. Global Investors, Inc. (GROW)

Q4 2018 Earnings Call· Fri, Sep 7, 2018

$2.66

+3.10%

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Same-Day

-4.49%

1 Week

-4.49%

1 Month

-1.92%

vs S&P

-1.85%

Transcript

Holly Schoenfeldt

Management

Good morning. Thank you for joining us today for our webcast announcing U.S. Global Investors results for the Fiscal Year 2018. I'm Holly Schoenfeldt. If you have any question 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 Schoenfeldt, Marketing and Public Relations Manager. During this webcast, we may make forward-looking statements about our relative business outlook. Any forward-looking statement 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 statement. Any such statements are made as of today, and U.S. Global Investors accepts no obligation to update them in the future. Now let's go to Frank Holmes, CEO and CIO, for an overview of the period. Frank?

Frank Holmes

CEO

Thank you, Holly. Good morning, everyone. As you can see in the visual U.S. Global Investors is an 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 the first of their kind investment products, like including the first no-load gold fund. U.S. Global Investors is well known for its expertise in gold and precious metals, natural resources emerging markets, and now a cryptocurrency space. Our strength is that we're a go-to stock in exposed emerging markets, resources and digital currencies that appear. I’ll as discuss that more in greater detail. We remain debt-free, a strong balance sheet with a reflexive cost structure. We've increased our cash balance and Lisa Callicotte will explain that in her discussion. And our monthly dividend and return on equity discipline. Even in a very challenging mutual fund world, we talked about it on a weekly basis. So, we make sure that we're focused on what can we do to generate higher returns on our invested capital. Next please? I want to thank all the top institutional investors, Royce and Associates, Financial & Investment Management Group at Michigan, the Vanguard Group which is basically index, and BlackRock Institutional Trust, and the Perritt Capital Management. In particular The Royce Funds, FIM and Perritt are active fund managers. So, thank you for your support and encouragement. Next please? For the past 10 years, we've consistently paid a dividend and the yield is a modest 1.86%. The monthly dividends are small but we have maintained that discipline of paying a dividend. The Board's approved through the September 2018. And it’s reviewed quarterly by the board. Next please? The Board approved repurchase up…

Lisa Callicotte

CFO

Thank you, Frank. Good morning. Before I summarize the results of operations, I'd like to discuss the accounting treatment related to our direct investment in HIVE, and changes in how this and similar investments will be recorded next fiscal year. USGI, through its wholly-owned subsidiary, U.S. Global Investors Canada Limited, directly owns 10 million shares of HIVE. At June 30, 2018, these shares were included in investment securities available for sale on our balance sheet. And during fiscal 2018, unrealized gains and losses on available for sale securities were excluded from earnings and recorded in other comprehensive income as a separate component of shareholders' equity until realized. Slide 43. We have summarized our accounting changes in our investments due to the new accounting rules. So, we adopted accounting standard update ASU 2016-01 Recognition and Measurement of Financial Assets and Financial Liabilities, effective July 1, 2018. So, starting in our fiscal year 2019, some of our corporate investments will be accounted for differently. There will no longer be an available for sale classification for equity securities with readily determinable fair value. And as a part of the adoption [technical difficulty] a required cumulative effect adjustment and reclassified $3.1 million in unrealized net gains out of cumulative comprehensive income and into retained earnings. And effective July 1, 2018, changes in fair value of these investments, formerly classified as available for sale were recorded through earnings rather than comprehensive income. And this will include any changes in market value of our investment in HIVE. We anticipate that this will cause our investment income and thus, the Company's net income to be more volatile. Now, I'll discuss the results of operations for 2018. And on page 44, we recorded operating revenues of $6.3 million for the year, which decreased $502,000 or 7% from the…

Holly Schoenfeldt

Management

Thank you, Lisa. As you can see, starting on slide 50, a majority of our fund assets are in emerging markets and natural resources while 32% are in domestic equities and fixed income. As for distribution, more than three quarters of our assets come from retail investors and the other quarter 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 markets as well as our ETFs. We believe investors appreciate the expertise that we offer and we are pleased to have received numerous awards from Lipper over the years as recognition by Morning Star. Investors can find more information about our funds on our website usfunds.com. The Company and our funds continue to receive an invaluable amount of viral publicity gained through media interviews. Frank Holmes often shares his insights with financial outlets likes CNBC Asia, Bloomberg Radio and Kitco News, just to name a few. And we continue to receive recommendations by influential financial newsletter writers as well along with sharing and syndication of our award-winning original content by third-party publishers. The newsletters have a loyal following and receive millions of visitors each month. Frank Holmes CEO Blog, Frank Talk continue to grow in popularity as well. His commentary is often featured by prominent publications including Forbes, Seeking Alpha, the Crust [ph] and Business Insider with millions of monthly visitors. We like to call Frank Holmes our globe charter because he along with others on our investment team travel around the world to share our thought leadership and also interacts frequently with our followers through Facebook, Twitter, LinkedIn, Instagram, YouTube and Pinterest. In December, we launched a new video series to supplement our award-wining Frank Talk Blog, Frank Talk Live features Frank Holmes…

A - Holly Schoenfeldt

Management

And now we would like to open it up to questions. We have a few more minutes. And as a reminder, you can enter the questions in the control panel on your screen. And we have one or two here already. Frank, I'm going to direct this, first one to you. It says, do you see GROW moving more with the price of gold or the price of Bitcoin recently or is it kind of a combination of both?

Frank Holmes

CEO

I think, this is a combination of both. But, the daily volatility has to do with the crypto space. It appears that volume exploded last year in the fourth quarter of 2017 with the investment in HIVE. Our volume just went up exponentially. And a lot of that has to do with quant funds that are rather than going into trade through a Coinbase or an exchange, Ethereum or Bitcoin they've been using GROW as a proxy. And I heard that from institutional training desks in Canada also. So, I think that it's a combination of both.

Holly Schoenfeldt

Management

Great. And another one for you, Frank, is what is next for gold and commodities, and what does this mean for GROW?

Frank Holmes

CEO

Well, the most important part is the product, coming out with new products and innovative products, such as GOAU for the U.S. and GOGO for Canada in that gold space. And I think, there's going to be -- as I mentioned earlier that passive investing is going to create a crisis. And so, I don't know how, but we do know from what happened at GDX and GDXJ that -- particularly GDXJ, [technical difficulty] is cannibalization that took place and the volatility went up greatly. It has nothing to do with the good stock versus that stock, just fund flows. So, I think that GOAU is starting to show that having selective gold stocks from a quant approach, you cannot perform this other money flow index. And hopefully that grows at a $100 million, which starts to throw off positive cash flow for us to continue to grow. And just always the wonder [ph] that there's billions of dollars of these other inferior products, but this is part of marketing. The first mover advantage of being in the marketplace is a key. But, the other one is just seems to be expense ratios are driving such fund flows and indexing having zero. And we'd like to point out that Vanguard, which basically captures so many gold investments of the gold stock fund with billions of dollars, because they were cheaper was better thought process on argument. And now, they're basically selling $2 billion of the gold stocks and going to go down to 20% weighting and change their gold -- mutual fund into a gold, to a cyclical product. And so, what we think for us is that this space is basically -- the argument is so flawed because we outperformed, our gold shares fund outperformed the Vanguard gold equity fund for 1, 3, 5 and 10 years, but it grew bigger, all because cheaper was allegedly better, and then, often the other gold stock investors. We still maintain that it’s healthy to have a 10% weighting in gold and gold stocks and we balance once a year. It helps your sharp ratio; it helps the overall protection against imbalance, fiscal monetary policies by governments. And we think that we're well-positioned to be able to provide superior products. So that's what we have to do. The other part is that we're really at an oversold when it comes to equity versus commodities. Maybe take the Goldman Sachs total return index and divide it by the S&P 500 as a factor to oversold and overbought, we are definitely at a troughing period. And so, we believe that any type of sustained global growth will basically, all the sudden, see this demand for commodities pick up. And we believe, we’re trying to do it on the Silk Road and recently playing Santa Claus road to Africa is very constructive long-term for commodity demand. And so, with that, we remain bullish.

Holly Schoenfeldt

Management

Great. Thank you for that, Frank. All right. Well, this concludes U.S. Global Investors webcast for fiscal year 2018. The presentation will be available on our website at usfunds.com. Thank you all for your participation today.

Frank Holmes

CEO

Thank you, Holly and Lisa.