Earnings Call Transcript - GROW Q1 2022

Operator, Operator

I want to briefly pass it over to Frank Holmes to discuss the significance of grasping what we refer to as the DNA of volatility before we get into today's results. Frank?

Frank Holmes, CEO

Thank you, Holly, and thank you, everyone, for joining this presentation. I appreciate your patience as we reflect on the past year. Before discussing financial details and product developments, I want to emphasize something for investors: traditional legal terminology doesn't capture the essence of volatility. It's all about the math, which is what draws people in. For traders, volatility can be daunting, especially for those who are retired investors. It's essential to note that the S&P 500 sees daily volatility of 1%, meaning it tends to fluctuate up or down by that amount around 70% of the time. Gold bullion exhibits stability on a daily basis, and while it becomes slightly more volatile over ten days, the volatility for Dow Jones Asset Managers is comparable to gold and the S&P 500 on a daily basis, though it increases over ten days. Gold stocks are significantly more volatile—over twice that of the S&P 500 and more than double over ten days. Airlines are even more volatile, which is crucial given that they are our largest ETF and a major source of capital. The New York Stock Exchange Arca Airline Index experiences daily swings of around 3% and 8% over ten days, particularly impacted by pandemic-related news and sentiment changes. Additionally, oil prices are a substantial cost factor for airlines, and their volatility is reflected in airline performance. Interestingly, Tesla previously had around 5% daily volatility but has seen a significant reduction to 3% since joining the S&P 500. However, over ten days, Tesla's volatility increases. Bitcoin also remains very volatile. Our investments in airlines, gold, and HIVE Blockchain technology—which serves as a proxy for Bitcoin mining and Ethereum—have elevated our volatility, even though our overall fund assets have stabilized over the past year. I aim to highlight the strength of our operating cash flow from our ETFs and other funds which have remained stable. As an innovative investment manager, we take pride in our distinct background, originating from a U.S. Air Force investment club that has since expanded into an asset management company. I'm thrilled to have acquired control of U.S. Global Investors 31 years ago and, last year, I became a dual citizen, making 2021 special for us. Our expertise is global, focusing on gold, natural resources, airlines, emerging markets, and crypto mining. The surge in assets, especially with the JETS airline ETF, has been a significant driver for us. Despite some misinformation regarding gold prices, the average price last year was higher than in 2020, benefiting gold producers—a topic I'll elaborate on later. As the Chief Investment Officer and CEO, I will address products and funds, discuss airline recovery, and dive into HIVE Blockchain. HIVE has introduced notable volatility for various reasons, but it has been a beneficial investment for our company, positively impacting our financial health. I want to extend my gratitude to our loyal investors, especially The Royce Funds, Perritt Capital Management, and Bill Nasgovitz at Heartland Funds, who have provided unwavering support. We've also seen growing interest from family offices, particularly due to our gold expertise. I have noticed a significant interest among millennials in long-term investing based on the philosophy of "HODL," which originated from Bitcoin culture, prioritizing long-term holding over short-term volatility. Millennials engaged in capital markets have actively influenced price discovery, especially with the JETS ETF's impressive growth during COVID. We increased dividends by 150% in 2021, a decision made possible by solid financial strength derived from gains in HIVE and reinvestments in a unique convertible debenture. Our dividend yield is attractive compared to traditional bank offerings. Furthermore, we have initiated a share repurchase program, with plans to buy back 2.75 million shares of common stock through December 2022. As of September 30, we repurchased 13,647 Class A shares, and while we may adjust this plan, we believe our stock is undervalued and will review options in upcoming board meetings. As of January 7, we have $4 billion in assets, a significant year-over-year increase, with $6.5 million in revenue and net income of $2.4 million. Our operations are stable, and we're optimistic about revenue forecasts based on our strong asset management. Several factors have recently impacted quarterly assets, including the public sentiment around vaccination rates. Notably, gold prices have remained higher on average throughout the year, contrary to some trends. I'll also provide insights into our JETS ETF, which has maintained strong demand, experiencing record trading volumes despite the pandemic's ongoing challenges. By expanding globally, JETS reached new markets, including listings on the London Stock Exchange and in Mexico, as well as producing educational content for wider audiences. Travel recovery sentiment remains optimistic, despite ongoing variants, and market fluctuations will continue to be influenced by evolving government policies regarding COVID. Ultimately, understanding trends in health and travel, including hospitalizations related to the Omicron variant, will be vital in navigating investor sentiment and the airline industry, which is our largest product. As we assess historical recovery patterns and the vaccination efforts undertaken, the future of travel and our asset growth looks promising. Tracking traffic and demand patterns across airports globally will provide us with additional insights, especially as we consider airport-related investments within the JETS ETF. Given all the information shared, I remain positive about the airline industry, recognizing its potential for those interested in trading or long-term investments in light of increasing vaccination rates.

Lisa Callicotte, CFO

Thank you, Frank. Good morning. First, I'll start with our financial highlights. We had another strong quarter. Our quarterly average assets under management and operating revenues increased approximately 100% compared to the same quarter last year. Our quarterly income increased approximately $446,000 versus our first quarter for fiscal year 2021, reaching $2.4 million or approximately 23%. Now I'll review more details of the results of our operations for the quarter ending September 30, 2021. Beginning on Slide 35, we recorded total operating revenues of $6.5 million for the quarter, which is an increase of $3.3 million or 100% compared to the $3.2 million in the same quarter last year. The increase is primarily due to an increase in average assets under management related to our smart beta JETS ETF. As you can see, operating expenses only increased 58%, mainly due to higher ETF fund expenses and higher bonuses related to company performance. On Slide 36, we see our operating income for the quarter ending September 30, 2021, is $2.9 million compared to $937,000 for the same quarter last year. Other income for the quarter was $37,000, a decrease of about $1 million, mainly related to unrealized investment losses in the current quarter versus unrealized gains on investments for the quarter ending September 30, 2020. As expected, tax expense increased. Our net income after taxes for the quarter was $2.4 million, or $0.16 per share, which represents an increase of $446,000 compared to the net income of $1.9 million or $0.13 per share for the same quarter in fiscal year 2021. Moving on to Page 38, we see we have a strong balance sheet, including high levels of cash and investments. On Slide 39, note that our liabilities decreased from June 30, 2021, by approximately $2 million. On Slide 41, you can see our stockholders' equity details. The company has a net working capital of $26.7 million, an increase of $5.1 million or 24% since June 2021. It has a current ratio of 7.5:1.

Operator, Operator

Thank you, Lisa. As you can see, beginning on Slide 41, a majority of our mutual fund assets are in emerging markets and natural resources, while 29% are in domestic equities and fixed income. Regarding distribution, more than 3/4 of assets come from retail investors, with 17% coming from institutional investors. Moving on to Slide 42. This shows a quick synopsis of some of our most popular content during the year 2021. Based on our data analytics, readers of both the Investor Alert newsletter and the Frank Talk blog continued to be interested in stories about gold and precious metals, natural resources, and emerging markets. However, there was also interest in macroeconomic topics, primarily inflation along with cryptocurrencies. We did a recent wrap-up of all these top stories for the year, and you can find that on our website, usfunds.com. Moving on to the next slide, you will see two of the magazines where Frank Holmes featured on the cover as a story: Real Assets Advisers and Executive Global Magazine. Both are available online as well as in print, and I encourage you to check those out if you haven't already done so. They do a wonderful profile of Frank's experience in the market and its impact on the crypto industry. I'm happy to share that our marketing team added another star award to its lineup from the Investment Management Education Alliance. This year, we were recognized for our YouTube videos. All of our video content is produced in-house, from the topic ideas to the scripts, voice-overs, animation, production, and lastly, the marketing of these videos. I'm very proud of our team for that. By subscribing to our YouTube channel, you will get notifications each time we have a new video posted. Moving on to the next slide. Don't forget that we share a majority of our educational content, just like the videos I mentioned. We share announcements about our upcoming events where Frank might be a speaker, as well as our press releases across all our social media platforms. Please check those out when you get a chance, if you aren't already doing so. In the final slide today, as we wrap up our presentation, I want to invite anyone listening to submit any additional questions you have to info@usfunds.com. I will now hand it back over to Frank Holmes briefly for any closing comments today. Frank?

Frank Holmes, CEO

Thank you, Holly. Yes, congrats on the great marketing recognition. I'd also point out that the retail institutional related to our mutual funds; I think the ETF of JETS and GOAU has a higher institutional and family office, boutique hedge funds as an overall composition. I almost created a third tier when you look at the overall assets. We’ve provided on previous presentations showing you the significance of Robinhood retail igniting that price discovery. But that attracted much bigger fund flows. We noticed the amount of creates we get—the sheer size of them. Some days, we can receive 50 creates in a day to 100 creates in JETS. So when there is a redemption, they're trickling out, which is fascinating for us. We feel it’s much more of an institutional weighting. Thank you so much, Lisa, and thank you, Holly, and everyone else for listening to our presentation and for participating. Thank you for being loyal shareholders.

Operator, Operator

Thanks, Frank, and thank you, everyone, for your participation today. This concludes today's webcast.