Earnings Call Transcript - GROW Q3 2025

Holly Schoenfeldt, Director of Marketing

Good morning, everyone, and thank you for joining us today for our webcast announcing U.S. Global Investors' Results for the Third Quarter of Fiscal Year 2025. As seen on Slide #2, 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, Director of Marketing. Moving on to Slide #3. 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 and 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. Let’s move on to Slide #4. As always, we appreciate our loyal shareholders. If you'd like one of our signature USGI hats featured here on the slide, simply email us at info@usfunds.com with your mailing address, and we would be more than happy to send a little USGI swag your way. All right. Moving on to the next slide. I will briefly review our company for anyone new here. U.S. Global Investors is an innovative investment manager with vast experience in global markets and specialized sectors. We use a quantum mental strategy to create thematic Smart Beta 2.0 products. The company was originally founded as an investment club, becoming a registered investment advisor in 1968 and has a long-standing history of global investing and launching first-of-their-kind investment products, including the first no-load gold fund. Finally, we are experts in thematic investing, in particular gold and precious metals, natural resources, airlines, and luxury goods, all using a quantum mental approach that includes both macro and micro factors. Let's move on to the next slide. This is a graphic we often start all of our presentations with titled the DNA of volatility. It serves as a helpful reminder for investors that market fluctuations are a natural part of asset behavior over time. At this point, I do want to hand things over to our CEO and CIO, Frank Holmes, who can dive deeper into the macro-overview of the past quarter. Frank, over to you.

Frank Holmes, CEO and Chief Investment Officer

Thank you, Holly, and thank you for all of our loyal investors during a challenging time in this realm of capital markets, which is so different than in the crypto world. And I'm going to give you some more color on that in the presentation. But let's just talk about now this DNA of volatility. What's important here is that approximately 70% of the time is a nonevent for gold and the S&P to go up or down 1% and over 10 days plus or minus 3%. We update this data because if we go back to prior 2008, the volatility daily of gold was greater than the S&P and 10 years even much more so. So we also found that GROW's volatility was much more with gold stocks, and that volatility was using 3:1, but capital markets change over time, and ETFs and arbitrage between shorts and shorting individual names, going along with ETFs, all of this arbitraging out information, well changes the volatility. But what I want to point out here is that our volatility and GROW is pretty well, what the S&P 500 and bullion is. It's less than the Dow Jones U.S. Asset Managers Index over 10 days. And I found that most interesting why that's evolved this way because if I go back a few years ago when stock ran up to $12, a lot of it was in 2021 was Bitcoin being early adopters into the Bitcoin ecosystem by the co-founding accretion of HIVE Digital and HIVE's DNA volatility back then was plus or minus like 7%. And so our big holding, we were moving now with whatever Bitcoin was doing in the crypto mining space. But that's changed. And so that's why it's important that when you look at holdings and what we're doing on and what our volatility is and how it relates to the underlying assets and our investments. What's most interesting and it's not here this time is strategy Michael Saylor's ETF basically has become. It's a stock, but that stock is also in a single purpose and they cover writing against it for the income plus all the converts he's done, where they go borrow from the ETF, they go short the stock to do the convertible. There's just so much trading around that name, and that volatility is actually greater than what the Bitcoin is. So that's what I'm trying to point out to you as an investor when you look at risk and you're looking at volatility is to recognize what is our biggest asset base that's underneath us. It can impact our earnings and revenue. I want to thank the shareholders, like I mentioned earlier, but especially long-term shareholders like Perritt Capital and recently Gator Capital Management. I own approximately 19% of the company and approximately 99% of the voting control. That voting control is all has to do with rules and those SEC-40 Act investment advisory rules. So that I still have to have independent directors, which I have, for the company and being public unless it's on NASDAQ. Strategy and tactics, most important is strategy and can we execute on it. Well, creating thematic products that are sustainable using a Smart Beta 2.0 requires rigorous back testing for thousands of hours. And it's proven itself with JETS in particular that we've done after fees. And that discipline is basically to rebalance your portfolio every quarter and recalibrate looking for unique business models or you're looking for about 60% seems to be the 70% focus on factors that are momentum. Who's got the fastest growth in revenue out of the universal stocks, and who has the fastest growth in EBITDA and cash flow. And then you want to look at the remaining part, which who offers the GARP investor the deep value discount and usually that's a high free cash flow yield and a debt-to-equity ratio that's less than the industry. So that's what we do, and we're happy to see that it's been working now for our funds. It's interesting, the way we know that the clock world itself is high frequency. It's an arbitrage of information on average is less than three days. Holding something for three quarters is next to impossible and for three months is also. But when you're a mutual fund or ETF, even if you're active, you'll get criticized for having that high frequency volume trading and transactions, etc. So for me, it was trying to figure out something that was quant-based that had a macro-overlay and also bottom-up stock-picking factors and that also recalibrated. So I'm happy to share with you it works, and we're going to continue to expand and grow with that. Because our mission is to make people feel happy financially and secure that when they buy one of our products, they can manage expectations to deliver something that they thought it would deliver. And we are trying to create a product that is unique and special in a theme that we think has long-term growth to it. Strategic buyback of stock, as we continue to do that, flatten down days, manage to preserve cash for future growth opportunities and market corrections, M&A activity to acquire funds, grow our subscriber base and followers. And now we're going to start increasing our exposure back to the Bitcoin ecosystem. We had a unique convertible debenture with HIVE, and that's slowly being paid down. The 8% coupon is going away, and we want to deploy the remaining sort of that capital back into Bitcoin and also to back into HIVE because we do that HIVE has a very unique growth opportunity, which has been very public about and that has been the 4x increase in its Bitcoin production this year. So we think that it's deeply undervalued, and we remain very bullish about Bitcoin. So for the long term, you can see here, we've outperformed the Russell Microcap Index. So we're happy with that, but we'd be happier if we had stronger growth in the short term, and that's predominantly because of the apathy and the discouragement of the industry and the great worry that we kept listening to about the airline industry, and we experienced JETS being redeemed, and we're scratching our head because we've got some of the airlines we own, like United, that was up 130% last year, and they continue to do well. The airline industry, I'm so surprised at the negative narrative that comes out of Wall Street; then it's a cyclical business, and I'm going to share with you it's not. If you want to go and get more granularity of our presentations, then the airline industry, used to have a high season, low season pricing. Same with hotels. It's now high season and very high season. It is still very expensive, and what's happening is with AI is not just for Las Vegas; they're using it for managing flights and managing luxury goods, manage their supply. And I think that this industry has tremendous pricing power, and the psychology of society due to COVID is more pent up to want to travel. And this has really become evident in Europe where the influx of people who want to go to museums and parks in cities like Venice and Barcelona are now charging a fee. And these cities are becoming like thematic parks, like going to Disney World to go visit, and you have to pay a $100 to get in. And if you want the family luxury package, it's even more. It's very expensive. And so what the mayors of Barcelona and Venice have said is that they need this tax, and it's to repair the roads, and there's just so much traffic. And interestingly, there's a park in Barcelona that Gaudí had designed, the famous architect, and his architecture is so unique and special. And this park oversees Barcelona; it was always free. Today, it's like €20, and you have to book online. It has now become a Disney park, and the locals are able to special pass, etc. They never have to pay because that's where they stayed, especially during COVID. But anyone else who wants to see it to repair the park and because tourism is so big. It's recognizing that this tourism is not going away. So I believe the airline industry will go from being characterized as a cyclical business to more of a growth business. And I've been early on these things before, just like we were on Bitcoin. We couldn't launch a Bitcoin ETF in 2017, so we seeded and cofounded the first crypto mining company to go public called HIVE. So this journey of JETS led us over to England to get listed, and then the opportunity was the case of something that had a broader universe in travel, and that was Tripp. And so we merged our JETS ETF with another group that wanted to get out of the business, and we're very happy with this. It's also the first active ETF to be in the London Stock Exchange. It's very much like JETS. It's very Smart Beta 2.0, even though it's called active, and it has a broader number of names because it includes the industries of cruise lines and hotels. Whereas the JETS product that's listed on the New York Stock Exchange and Mexico City and Bogota and Lima, that product is very much more focused on the airlines themselves and airline and airport manufacturers. So I mentioned earlier initiatives of strategy to increase these investments. We have several million dollars coming back from HIVE; it used to be much higher. So we want to refocus on the Bitcoin ecosystem. There are many factors such as it'll become a regulated industry. There'll be regulations coming out. The administration is pro-Bitcoin. So I think that it's a much safer process to go down a channel that banks now are allowed to own Bitcoin. Things are really changing rapidly under President Trump and his regime. So I think it's very positive for the crypto industry. And so we plan to increase our exposure like a dollar cost program for Bitcoin ETFs and to invest in HIVE shares. The WAR ETF looks positioned to benefit amid rising geopolitical risks. That relates to our latest ETF called WAR. It's the AI application to build up against cybersecurity attacks and military. It's really the spread of China. We're very happy because we created this model. It outperformed all the other security type of defense ETFs before we launched the product with extensive backtesting. And year-to-date, it's held its ground. It's not down, whereas the overall market has really taken it on the chin and expanded its volatility ever since the President Trump started going after countries on a creating a tariff war. Gold, our darling, recent trade-off of stocks. The correlation is so high, and I want to try to point out that this century, you can see that the annual average gold price has been up 84% of the time. It's outperformed the S&P 500. It just shocks people when they just, like, they don't want to believe how great of an asset class this has been. And it's only going to get better as we go forward for several reasons. But here's what's important is that modern monetary theory is a mechanism of this printing money. And since I really started to grasp it with politicians and government agencies around the beginning of this century, we have seen gold do phenomenally well. We see 9/11 triggered gold rising, but it would also trigger growth in military spending. And then with Russia going into Crimea and then going back and then showing that they're not going to change and invading Ukraine, that's had a significant impact on gold as an asset class and central banks becoming skittish on paper money, the way that printing of paper money has exploded. We look today at the G20 countries, and we're going to take a look at India and China, who are collectively 40% of the world's population. Their money supply M2 has jumped almost up to 10% growth. So that only bodes well for gold, and I think we're going to continue to see that as central banks are buying. It's also going through under Basel III, which is the international banking regulations for the big money center banks. But physical gold is going to all of a sudden be treated as tier 1, which is called high-quality liquid asset, meaning it could be counted as full market value alongside with government bonds and cash when calculating that bank’s liquidity coverage ratio. This became something that was very significant in the 2008 banking crisis. And gold, as we've seen, really, this idea raises the status of a risky commodity to a safe liquid asset, making it more attractive for banks to hold. And when I first moved to Texas in 1990, it was nothing but negative on gold. Even though it was known for gold funds and we had great gold fund performance when gold was up that year, it was always dealing with the notion that gold is a high-risk commodity. It's bad. But it's now we're early. And I would say to share with you that I'm about 35 years early on that sort of journey where I really think that gold is the 10% golden rule that is going to grasp with investors and institutions and now with the banks being encouraged. It also impacts Basel III's emphasis on physical gold, not gold ETFs. We saw this first sort of Germany that you get taxed differently if you had physical gold versus if you had a gold ETF. And so they really want people to have in their hands physical gold. So this idea really legitimizes gold for all as a financial safe haven. And I think that we're going to see gold, like I mentioned a couple years ago, go to $4,000. Well, it's almost there. I think it goes to $6,000 by the end of Trump’s presidency. So gold mining stocks are outpacing the physical, and it's really odd. It's happening, but nothing like it used to happen before. You used to get those 2:1 run with gold stocks taking off when gold's taking off. And there seems to be, like we're seeing in the airlines, one of the big parts is the biggest cost the airlines have is falling oil prices. Well, that was a big thing we wrote about and talked about last year, and the airlines were up much more than the S&P 500, and there's falling oil prices. Well, oil prices fell again this quarter, so they're further more profitable. But there's an apathy. There's an apathy towards the airline industry, even though all the flights are packed, and that's just a psychology. I don't know directly and honestly with all respect; it's annoying and frustrating because we're picking good quality stocks, and the same thing now comes to the gold stocks. But you can see, in particular in the first quarter, that the gold mining stocks are on a tear. Well, a lot of this stuff happens with the, they like to say, the 50-day moving average and what we saw is that gold starts trading to an all-time new high when Trump first went after Mexico and Canada around Valentine's Day. And that first move, all of a sudden you started seeing gold rise above its 50-day moving average. And then we saw gold go through another big change during Liberation Day, where it slightly sold off and then boom, it just charged up to all-time highs. So having a 10% weighting in gold is just prudent, and it's shown up for this decade. It's shown up for this century, and it's shown up this quarter, this year. So we think that with Basel III as a backdrop institution, we're going to get a greater interest in gold and our gold funds will all of a sudden start to get a different flow. Now this is just to give you an idea of how bearish people are. Gold stocks conundrum; we're seeing the largest gold equity ETF, the VanEck Gold Miners, it's got redemptions, even though the price of gold is going up, even though the price of gold is making all-time highs. Why would you be doing this? And so it doesn't make sense that people are happy seeing gold stocks make an all-time high, but they're going to redeem because no one believes. I've never seen, but it’s such as gold. It's also the airlines. So another service was showing you that gold is rising, but redemptions are rising. And it just it's very weird. We're not experiencing that with our gold AU; it's pretty well flat during this time period. But in talking to some of the owners of this GDX and GDXJ, they were commenting that a lot of hedge funds are shorting periods gold names, and they were long on the ETF of the Paris trade. And as gold stocks continue to roar and they’re outside, they start covering. So that's why they think the redemption is coming from that. But I think it's a lot of just apathy towards the stock market. So gold mining stocks are trading at a multiyear high. Well, but that's strange, isn't it? It goes $3,500, and really they're trading at the same level when they were $1,500. So these stocks are just charging with free cash flow, high free cash flow, something they've never had. But I've been writing that the past two years, it's been slowly rising that the universe of almost 90 gold proofs as we follow around the world that there are 70 of them who had free cash flow yields and made them high free cash flow yields, higher than the overall S&P 500. And so now these numbers are coming out for this past quarter. They're going to be just massive. In the quarter we're in right now, we're going to have back-to-back huge growth in revenue, cash flow, and earnings. This is a simple ratio taken in New York Arca Gold Miners Index by the S&P 500, and then it's always been recommended that you have a weighting in the sector, and when you look at the ETFs, they used to have at one time something like 6% weighting, and it fell down to 0.5% and really it started to nudge higher, but it's so deeply undervalued relative to the overall S&P 500. So I remain very bullish about the future for our products and this weathering through this storm of apathy caused by the tariff battle that's taking place. I love IBD because of their model, that it's very agnostic towards industries, but they capture industry themes when they start to take off. And what's really important for me to share with you is in 2003, we had the same thing where the gold stocks were taking off. The only difference is back then, we would get some days $50 million coming into our gold funds. That's not happening today, and it's not going into the GDXJ. So there's something that's very weird, but they are showing up where they have growth and momentum in their revenue and their earnings, and it's being picked up by IBD and the stock prices of these names. So now we have something like 20% of the 50 names that get updated every week are gold stocks, and we own the majority of these names in our funds. So it's positive that we see this as a great backdrop that when the world sort of wakes up to gold that it's a long-term secular trend, these stocks will go through a bigger rating. Fear of tariffs and money market funds are seeing they'll see an increase, I'll use this as an example. Vanguard's Money Fund is seeing how much money came in with Trump's battle from Valentine's Day to Liberation Day in April. Just fund flows nearly started going into it on the stock market. Warren Buffett retires. One of the most brilliant guys. He retires with almost $345 billion in cash. 94 years old. What an amazing GARP investor. And I want to just sort of tip my hat to him, but also remember, he has a big cash position looking for sellouts to buy. Positive news, I'm giving this because the stock buybacks are back even though there was a tax imposed by the previous administration on buyback stocks because they sold off. We saw a drop in 2024 by combining the stock market soaring to new highs, and there's now a sell-off, and we're starting a repositioning of people buying back stock. Even the gold stocks, Newmont is not buying other gold mining companies or expanding their exploration; they're buying back their stock from all their free cash flow. So why do we buy back our stock? Well, the company believes that the stock is undervalued, and therefore we buy back shares of gold when the price is flatlined down from the previous trading day using a basic algorithm. And this is part of the company's two-pillar strategy to enhance shareholder value: increasing the dividends as well as buying back stock. And with this overall apathy, we're just continuing to increase our positioning of where we are buying back stock. I think that when we start to see various industries that we're in, we see the positive news from fund flows that we may change that position of our stock we're buying, but it's trading at a very deep discount. Yes, we lost money because of the change in our asset base because of the stock market's concerns on tariffs. But I think over the next 60 days, we'll probably get a bottom to this. So the current repurchase program for the three months ending March 31, 2025, could be repurchased a total of 187,987 Class A shares using cash for approximately $454,000. So the repurchase program shows you that it has increased, and it continues to increase. As the stock goes lower, then we'll buy back more. The company has paid monthly dividends since June 2007. The current yield works at about 4.13%. It pays monthly. So this thing about shareholder yield, I think it's just a brilliant way of looking at companies that are paying down their debt, buying back stock, and paying dividends and increasing their dividends. One of those three factors are really important for driving overall value for market cap. Show investors are committed to returning value to shareholders. So we like to do this comparison to a five-year treasury yield because dividends are really important. The five years where they gauge you on your dividend yield as a whole, 10 years predominantly a coupon they pay there is a tradeoff for funding for building a data center or building a building. You're going to get bank lending. It's always a discounted cash flow over ten years. But dividend paying stocks is five years. So when you look at us buying back our stock and what our dividend yield is today, that's a total shareholder yield of 10.53%. So we think it's a very attractive investment looking for a bottom in this cycle, and we continue to invest in the R&D for our Smart Beta 2.0 themes. Relative valuations are always important as a money manager, and it's unique, the spectrum here, and it rotates. If we go back a couple of years ago, our WisdomTree had a higher return on assets. They now have a higher, which you can understand with the change in asset structure, and our 8% convertible bond being paid down, that additional income affects your return on your assets. But our pretax margins help the decline, in the assets. You can see this with Invesco. Invesco has QQQ, a beast over a $300 billion product, which is 40% of their assets. And they've sold off along with the QQQ, and the dividend yield is now 6%, which is greater than what a five-year margin is. So I think that from a current income perspective, it looks pretty attractive. If you believe, like Warren Buffett is, and if you're the ultimate investor who believes in America, build your cash like you did last year in the first quarter, and look for something to buy when it sells off. But buy the dip and hold on for dear life because America is the greatest country in the world. Well, QQQ covers NASDAQ, so I think that it makes these companies look quite interesting. A look at Q3 2025; the company has steady cash flow despite challenging macro market environments, which I've gone through. The company has a strong balance sheet, which includes cash and other investments. And three, the company continues to buy back stock on flat or down days and pays a monthly dividend. I think that makes us unique and special, and we will get through this where we think that we'll go through the rerating. And we also remain that we feel that the high position is slowly being paid down that we need to be repositioned in the Bitcoin ecosystem. The politics have changed and we think that Bitcoin adoption will continue to grow. Smart beta 2.0, I think I pretty well covered that it's really an important fundamental investment strategy that requires a robust amount of hours and you have to look at it all the time because when you do the quarterly rebalancing, the data pulls by third party and ourselves are always different. And the data pull from Bloomberg or other sources, you have to check it every quarter. So there's ongoing vigilance on picking the stocks and creating that portfolio. So we don't think it's a black box. You sit back and do nothing once you buy your basket of names. It’s the opposite. We have investments in HIVE Digital, and it's from $15 million we have down to $2.3 million left, as paid off quarterly, to 8% convertible. So this is money is coming in; we'll redeploy into the Bitcoin ecosystem. So we have $1.4 billion in assets, $2.1 million of quarterly operating revenues. You can see our earnings were down. This is going to give you more color and granularity on it, but a lot of it has to do with the sort of the fears of the airline industry and the fears of gold stocks that they're not going to be sustainable and gold, whatever it is with the apathy. I've seen it before and witnessed what so I believe that we'll claw through this. We're a lean machine of less than 25 employees, and we know that at any moment, these products can go like JETS went from $140 million down to $50 million, then up to $4 billion, and then now it's down to just under a $1 billion. So you just have to realize that's just the volatility and a lot of sentiment, and during that whole period, we'll make sure that we're always picking the best of breed stocks. We just celebrated JETS being ten years. We have the opportunity of going to the New York Stock Exchange and sharing that with other people. So it was a great trip. Now, the brains and hardworking, Lisa Callicotte, is going to give you a financial analysis of what took place. So I turn it over to Lisa.

Lisa Callicotte, Chief Financial Officer

Thank you, Frank. Good morning. First, I'll start with our financial highlights. Our assets under management were $1.4 billion for the quarter, our operating revenues were $2.1 million, and we had a quarterly net loss of $382,000. The next slide talks about our breakdown of our earnings. We have operational earnings, which consists of our advisory services, and we also have other earnings that consist mainly of realized and unrealized gains and losses on our investment holdings. So both of these are dependent on the market and will fluctuate as the market does. On the next slide, we'll see more detail about our operations in quarter ending March 31, 2025. Here, we see that the operating revenues were $2.1 million for the quarter, and this is a decrease of $490,000 or 19% from the $2.6 million in the same quarter last year. The decrease is primarily due to decreases in assets under management, as Frank discussed, and especially in our JET ETF. Operating expenses for the current quarter were $3 million. This was a decrease of $85,000 or 3%, primarily due to a decrease in general and administrative expenses of $281,000 or 16% due to lower fund expenses. G&A decrease was somewhat offset by an increase in advertising of $146,000, primarily attributable to increasing efforts to grow our assets under management. On the next slide, we see our operating loss for the quarter was $893,000 or an unfavorable change of $405,000 compared to the same quarter last year. Other income increased by $120,000, and that was due to net realized and unrealized losses on equity securities of $50,000 in the current quarter versus $231 in the same quarter in the prior year, which was a favorable change of $180,000. The net loss after taxes for the quarter was $832,000 or $0.03 per share, which is an unfavorable change of $347,000 compared to our net loss of $75,000 in the same quarter for fiscal 2024. And then on the next couple of slides, you see our balance sheet. We have a strong balance sheet with high levels of cash and securities. Then on slide 45, we see we still don't have any long-term debt. And on slide 46, you can see our stockholder balance sheet. The company has a net working capital of $37.5 million and a current ratio of 21.7:1.

Holly Schoenfeldt, Director of Marketing

Thank you, Lisa. Okay. The first slide in my section highlights our continued commitment to sharing original, timely market insight on YouTube as well as TikTok. Videos are one of the most effective ways to educate and engage both new and existing shareholders. So if you haven't yet, we highly recommend checking out our YouTube channel. And on the next slide, this is our latest in-house video, which we think shareholders will find both insightful and timely. It ties in well with our WAR ETF and the ongoing focus on the defense sector right now. This video actually covers President Reagan's strategic defense initiative, or better known as Star Wars. So check that out when you have some time. Then on the next slide, these are just a few of the upcoming conferences where the U.S. Global Investors Team will be participating. First up is Wealth Management Edge that happens in June, where we'll be engaging with RIA, getting some media exposure and connecting with potential shareholders. And then in July, we will be at the Rural Natural Resource Symposium, which is hosted by Rick Rule. And while we are there, we are going to have a modest booth presence, and we're especially excited that our Gold Fund Manager, Ralph Aldis, will be speaking on the investing legends panel alongside industry leaders like Frank Giustra from Fiore Group, Rob McEwen from McEwen Mining, and Jonathan Goodman from Dundee. Moving on to the next slide, I want to point out that the Frank Talk blog continues to expand its third-party distribution, and now you can sign up to receive it on Substack. This platform has around 20 million monthly active subscribers. On the next slide, we always like to recap the most read Frank Talk blog post during the quarter. So as you can see here, the top themes focus on tariffs, trade wars, and then gold. And honestly, all of those are still incredibly timely as we head into the next quarter. Finally, on my last slide, I do encourage you all to follow U.S. Global Investors on social media. We're on Twitter, LinkedIn, YouTube, Instagram, and Facebook. So wherever you prefer to get your news, be sure to check us out. This way, you're up to date with everything that's going on, not only with GROW, but with our funds and just the broader market insights. All right. As a reminder to our audience, if you have any questions today, please e-mail those to info@usfunds.com, and we will gladly follow up with you to get anything clarified that you may need more information on. So thank you so much for tuning in today. That concludes our webcast.

Operator, Operator