US Global Investors Inc (GROW) 2017 Q1 法說會逐字稿

Good afternoon. Thank you for joining us today for our webcast announcing US Global Investors' results for the first quarter of FY17. I'm Lisa Aston. 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, US Global Investors' CEO and Chief Investment Officer; Susan McGee, President and General Counsel; and Lisa Callicotte, Chief Financial Officer.

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-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 US 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?

Thank you, Lisa, and thank you for everyone for late on a Friday, which is very unusual for us to be doing a presentation, especially as we are trying to get our Investor Alert out. But it's just the timeline. Next week I'll be in Australia, and it was just faster to get it done this way. And I apologize for late Friday going through this Q&A opportunity, but more important, just to quickly give you an update that as our patent, just comments regarding US Global, we welcome all new investors. And existing investors, we thank you for your loyalty.

US Global Investors is an innovative investment manager with vast experience in global markets and specialized sectors. Known 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.

US Global is well known for its expertise in global and precious metals, natural resources and emerging markets, and I'll add that opportunity to get a tacit knowledge going Down Under to the great country of Australia, which has been a boom, been great gold stocks for our funds. They've have had spectacular runs. And if you visit our website, you can learn more about what's been driving those factors for Australian gold stocks.

The next visual is showing that our strengths. So we strive to be that go-to stock exposure to emerging markets and resources. We are debt-free. We still have this great, I think, strong balance sheet with a very reflexive cost structure. We maintain this monthly dividend and return equity discipline. It's been very challenging. What we're happy to say is that we've had a quarter that finally turned, that we showed that we needed assets, a rebound in assets, a realignment of costs, less employees, et cetera, which we'd comment on previous presentations, I think have all been helpful in the turn to being profitable.

I think also that we're highly correlated to the price of gold -- gold has a big rally, we rise with it, and then gold goes through a correction, and immediately our stock comes off with the correction. But I don't think the world of gold is the only thing we offer in particular; we have other great products.

I also want to go to the next visual to thank all the investors, in particular FIM Group, the Royce Funds, Newberg Family Trust, the Vanguard Group and Sentry Investment Management out of Canada for being investors in GROW. We've consistently paid more than 9 years, and the yield is modest at 1.63% monthly dividends. The payment is tiny, but the point is as far as the discipline for us to make sure that we get our act together in adapting quickly and faster to maintain that dividend. And hopefully, I think when assets go over $1 billion, we can always sit down and consider increasing it.

But we will need a real strong turn in these emerging markets and resources, because we can show that rising assets are coming from great fund performance. But getting and attracting new assets is going to be a continuous process. But this rebound is so important to recognize what we've done. And I want to thank in particular Lisa Callicotte and Susan McGee and the rest of the team, how they've streamlined costs down to that lower asset level so that when we bounced, we do show a boom in that cash flow.

The share repurchase program is in motion. The Board approved a repurchase up to 2.75 million of the outstanding common stock. And during the fiscal year, the Company repurchased -- it looks like a small number of 14,947 Class A shares using $30,000. But we use an algorithm, and the algorithm is to buy back shares in down days in accordance with all the applicable rules and regulations that restrict amounts and times of repurchases. We did earlier, like two years ago, cut back on the dividend and allow for to maintain the stock buyback.

As evidenced by regulatory filings, myself, purchasing GROW pursuant to rule 10b-18 plan, which means I buy along with GROW on a certain allocation, so the prices are aligned. And it's totally remote from me giving an order, and it's very strict rules that you must comply with to be able to buy back stock, both as an individual and as a corporation.

Now, we are happy to go over our balance sheet. The little green dot there shows you that we started investing in higher-earning securities. That's why it looks like our cash dropped, but really, it hasn't. We're just trying to earn higher interest income, dividend income on our cash. It's a strategic decision to enjoy higher returns on our invested capital, especially in a low-interest-rate environment.

As you can see, we're highlighting for you since 2011, when gold peaked at $1,900 and our assets had that massive surge over the 2008 meltdown, it's been a slow decline. And our decline has a lot to do with falling resources around the world, emerging market trade, China, a rising strong dollar. It's had a big impact. And along with that was this rising regulatory costs that are just much more punitive for small fund groups. Any small fund group just feels that burden, and it's been a restructuring mode that we've been in. Susan can comment more about that restructuring, and the final restructuring was a transition to Atlantic Services.

The next visual is basically highlighting what I discussed earlier, that there's been a rebound in assets, both at Galileo in Canada and US Global. And Galileo's fund performance has improved in addition to the assets rising there. And what's good is that we also turned the corner in positive cash flow, and so did Galileo, so that we've got a double win.

Now, the next one is looking at the asset breakdown of US Global Investors funds. We've gone from a pie diagram to a triangle. I think it's just really easy to quickly see that the 30% of domestic and equity and fixed income funds, and 70% are emerging market, and that's resource funds. So the higher fees are always associated with the 70%, which is important, which is a pillar. And that's what's key about the rising assets, is getting our equity assets back to a $1 billion, and that really, truly, gives us a stable free cash flow.

The other thing that's interesting is that we still have the strong direct relationship through our Investor Alert, which has won many awards again this year, and our own educational marketing program. And that's allowed us to enjoy a direct relationship with 75% of the customers, which are retail. Unlike most other investment advisors, most of the money is through a third-party platform, and they really don't know who the customer is, whereas we have a strong emotional relationship because we publish all the time, and people feel that they're safe in respect of understanding why markets are going up or down. And that's why we publish the Investor Alert every Friday.

The next one is just so important for investors to recognize, I always give this. Like I talk about gold, I only have 10% in gold and rebalance every quarter. If you're very active or once a year, but it's really appreciating life is about managing expectations, and different asset classes have different degrees of volatility.

So when we look at the gold stocks, they have -- it's a non-event over any rolling 12-month period to go plus or minus 40% in a year and 3% in a day. GROW can go plus or minus 4%. That means 70% of the time, it is a non-event for GROW to go up or down 4% in a day, plus or minus 80% over a year.

And gold bullion is a lot less, so you can see that the Gold Index is 3-to-1 to bullion, and GROW is more aligned and more leveraged to cash flow to rising gold assets than a lot of the gold stocks we invest in. And the S&P and bullion are both the same in volatility over any short-term period or long-term period. And oil is much more like emerging markets, very volatile. And the dollar, as you can see, its daily volatility is the same as gold bullion and the S&P, but over a rolling year period, it's the least of volatility.

But it does set off volatility in emerging markets. There's a double factor that takes place, like a multiplying effect. Rather than two plus three, it's like two times three, so often it happens. So rather than growing at 5%, you get 6%. And I think this is important for investors to recognize, that currency volatility does have a multiplying effect in the countries' currencies, and it can affect fund performance greatly.

The three key drivers for our fund -- regulatory costs, because we do have small funds and we're a small fund company, and small shareholder accounts, because we advocate a 10% position in gold. So if the average mutual fund customer is $50,000, that's only $5,000. But legal accounting disclosure costs continue to rise, and that basically says you're going to have a higher expense ratio to be able to give the opportunity for small investors to have exposure to gold and understand why. It really is not something that benefits us directly; it is just the cost of having small accounts in a very regulated world.

Our approach to building performance and managing costs is continuing -- streamline for stability and growth, build capability in ETFs, and realize potential, focus on core competencies and money management and marketing and sales. But really, our marketing, I think, is so important in respect it's education. It's very much content marketing and making sure the investors are informed and have a balanced perspective of the world. I'd like to ask Susan to comment a little bit more on the relationship with US Bancorp and Quasar, Atlantic and Foreside and SEI.

As we reported in previous quarters, starting in December of last year, we initiated a restructuring with Atlantic Fund Services to better position our Company to focus on strategic activities, which include portfolio management and marketing and sales activity. Due to this transition, the Company is no longer recording certain distribution and shareholder servicing-related revenues and expenses. And we are hoping and planning, and we have things on cost reduction, the ability of the funds to realize economies of scale, and we believe that this will be a win-win for both US Global Investors fund shareholders and GROW shareholders.

Lisa?

Thank you, Frank. Good afternoon. I'd like to summarize our results of operations for the quarter ending September 30, 2016.

Beginning on page 19, we recorded total operating revenues of $1.98 million for the quarter. This is a 58% increase from the $1.25 million we reported the same quarter last year. The increase is primarily due to an increase in average assets under management and the US Global Investors funds, mainly due to appreciation and net purchases in gold and natural resource funds.

It was somewhat offset by the decrease in administrative fees due to change in the administrative agreement with USGIF due to the (inaudible) of certain services and to other service providers, as discussed by Susan.

Our operating expenses for the quarter were $1.95 million. This is a decrease of $695,000, or 26%. The decrease is primarily due to strategic changes, including the following -- employee compensation and benefits decreased $389,000, or 28%, as a result of a reduction in workforce; general and administrative expenses decreased $209,000, or 19%, primarily due to strategic cost-cutting measures; and advertising expenses decreased $81,000, or 74%, due to higher costs in the prior period related to the ETF that was launched in April of 2015.

We see our operating income is $31,000 for the quarter ended September 30, 2016, versus a loss of $1.395 million for the same quarter in the prior year. On page 20, our other income, which is income related to our investments, is $253,000 compared to $534,000 for the quarter ending September 30, 2015. Net income attributable to USGI after taxes for the quarter is $263,000. This is an improvement over the same quarter in the previous year, which was a net loss of $868,000. As you can see on page 21, this equates to $0.02 per share versus a loss of $0.06 per share for the previous quarter.

Moving on to page 22, we see we still have a strong balance sheet. We own our own building, we have cash and marketable securities of approximately $17.7 million that combine to make up 65% of our total assets. As you can see on page 23, we still have no long-term debt. The Company has a networking capital of $16.3 million and a current ratio of 14.1 to 1.

With that, I'll turn it over to Susan McGee.

Thank you, Lisa. Our investment team was honored recently by The Mining Journal, presenting Frank Holmes and Portfolio Manager Ralph Aldis with the Best Americas-Based Fund Manager Award for 2016. We're very proud of this latest recognition for our active management in the gold and natural resources space. This award actually follows Frank's Mining Fund Manager of the Year Award from The Mining Journal in 2006 and Frank's recognition as a US Metals and Mining Top Gun by Brendan Wood International. Ralph was also named a Top Gun in 2011, and again in 2015. In addition, we have received 29 Lipper performance awards, certificates and top ranking since 2000. We're very pleased to offer this expertise to our fund shareholders.

Our sales and marketing efforts have continued to focus on our gold and natural resources funds, our municipal bond fund, and the US Global Jets ETF. Investors can find more information about our funds on our website, www.usfunds.com.

The Company and our funds continue to receive an invaluable amount of viral publicity which is gained through media interviews, through recommendations by influential financial newsletter writers, and the sharing and syndication of our award-winning original content by third-party publishers. For example, our article on the Top 10 Gold-Producing Lines in the World was featured by Business Insider, and it received over 89,000 views. And Frank Holmes' commentary is often featured by prominent publications, including Forbes, SeekingAlpha, ValueWalk, and Business Insider, and these sites have millions of monthly visitors.

We do call Frank our globetrotter, because he, along with others on our investment team, are traveling all around the world to share our thought leadership. We interact frequently with followers through Facebook, Twitter, LinkedIn, Instagram, and Pinterest.

Kitco News, which is the biggest gold website in the world and has an audience of around 10 million monthly visitors, features the Gold Game Film Shows with Frank's weekly Gold Market Analysis. Kitco has a partnership with The Street and has broadened the show's exposure and viewership. Since the show's beginning in 2014, we have filmed 120 video episodes, and those have aired and are available on the Kitco website. All of this coverage helps us leverage our brand by reaching millions of readers, viewers, and potential investors. Our website has been visited over 446,000 times since the beginning of the year from visitors and investors from all over the world.

US Global Investors is well-known for timely and balanced market insights and our thought leadership. The Company was presented several awards recently at this year's STAR Awards by the Mutual Fund Education Alliance, which recognizes excellence in investor education. The awards we received included Best Overall Communication to Retail and Advisor Audiences within the Small Funds category. Our weekly free Investor Alert newsletter was again awarded the Best Electronic Newsletter. And to date, we have earned a total of 80 STAR awards.

Investors can sign up at usfunds.com and join over 30,000 subscribers who are receiving the award-winning Investor Alert and our Advisor Alert e-newsletters and our CEO blog, Frank Talk.

And with that, Frank, I'll turn it back over to you.

Okay. I don't think there's much more outside of what you've said, outside if you're not a subscriber to the Investor Alert, we highly recommend you do. It's a lot of work that's written and put together by the investment team. They create a SWAT analysis of strengths and weaknesses of the past week and what economic data point could be an opportunity and threat next week. And I think it's just so helpful for investors to better get a feel for different asset classes in a very timely, balanced way.

So with that, I would like to open it up to Q&A.

(Operator Instructions.) We do have one question, and the question is can we -- would we comment in a little bit more detail on our investment in Galileo? Frank, can you take that one?

Sure. Galileo is a unique opportunity. We put up capital to give them a bigger balance sheet, and we now have an analyst that's working for and reporting to us that's up there, because Toronto is the financial capital of the world when it comes to resource and mining. When I was receiving the award for Mining Fund Manager of the Year, I thought it was interesting -- he said over 60% of all financings the past year for mining took place in Toronto. There are more listed mining companies in Toronto than all the other exchanges in the world combined. So it is a truly important place to have an office, to have analysts, to be able to go across the street every day to meetings that are coming in. And when I'm in their office, those meetings are all day along.

So I think from gathering research, it give us a foothold into Canada. And we are working on launching products through that platform, and they just have to go through that regulatory process, making sure that it's unique and different and sustainable and is scalable and a great benefit to investors. So I think from that end, they were losing money with that meltdown of resources this time last year. And it's the rebound, and I think they are now modestly profitable -- nothing spectacular, but any rise in assets in their shop from this past quarter average level. And the same thing with ourselves -- any rise above the average asset base can have a big impact in our free cash flow.

That's it, and that's a wrap, and now I'm getting ready to fly to Australia, Down Under. Thank you.

All right, thank you. This concludes US Global Investors' webcast for the first quarter of 2017. And this presentation will be available on our website at usfunds.com. Thank you all for your participation.