U.S. Global Investors, Inc. (NASDAQ:GROW) Q4 2024 Earnings Conference Call September 11, 2024 8:30 AM ET
Company Participants
Holly Schoenfeldt – Director, Marketing
Frank Holmes – Chief Executive Officer & Chief Investment Officer
Lisa Callicotte – Chief Financial Officer
Holly Schoenfeldt
[Starts Abruptly] 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.
On the next slide, 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 on the next slide, as always, we would love to offer anyone tuned in today one of our JETS, GOAU, or SEA hats. All you have to do is send us an email with your physical mailing address, and you can send that to [email protected].
On the next slide, I will briefly review our company. 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 smart beta 2.0 products. The company was originally founded as an investment club, becoming a registered investment adviser in 1968. The company has a long-standing history of global investing and launching first-of-their-kind investment products, including the first no load gold fund. We’re well-known for our thematic investing in gold and precious metals, natural resources, airlines and luxury goods.
On the next slide, just a little bit more about us for anyone new tuning in today. We have over 30 years of experience and we are located in San Antonio, Texas. We manage six mutual funds and three exchange-traded funds. And in addition, we have over 100,000 readers who are subscribed to our award-winning financial blog, Frank Talk, and our weekly investment newsletter, The Investor Alert.
On the next slide, I just want to quickly thank our top institutional shareholders, which as you can see are the Vanguard Group, Franklin Templeton, and Perritt Capital Management.
On the next slide is where I want to hand it over to Frank Holmes, CEO. Frank?
Frank Holmes
Thank you. Thank you, everyone, and everyone — and all the shareholders.
So, let’s go through — I have many slides to go through as Chief Investment Officer hat in addition to CEO hat and sort of give you an explanation of what’s taken place at in the capital markets from our fund products to the corporation and how we’re adapting and adjusting to external forces.
So, as you see in this visual, when you take a look at that five-year period at the June to June, and you can just see that, that snapshot shows you GROW is ahead of the Russell Microcap Index. And if you would’ve taken it another time, it could be negative, it could be positive. It all depends where — what time snapshot you’re taking a look at. And I think it’s just important for investors in the long-term picture is that, short term, we can have a capital market external forces have an impact in our fund flows, but usually, that’s short term, and then all of a sudden, our fund flows change. And that really is a big part that drives the stock price, is the fund flows.
Next, please. But during that journey, which you just saw over five years, there’s tremendous volatility on one-day and 10-day periods. And I like to go and look at, this as a reminder for investors that each asset class has its own DNA of volatility. The S&P 500 non-event and gold bullion and Dow Jones Asset Managers Index to go up or down 1% almost 70% of the time on a daily basis. On a 10-year — I’m sorry, on a 10-day period, you start to see the volatility change. And the S&P, it’s now 2%, and gold is 3%, but asset managers is 4%.
So, you can see that, on the 10-day, we’re about the same as the Dow Jones US Asset Managers Index, that our volatility is plus or minus 4%. It used to be higher. And one of the things in that volatility we noticed over trends that back in the ’90s, it used to move with money market funds. And as our fund went — when I first moved to Texas and focused on the growth of our money market fund because yields were very substantially higher than they are today, we grew that to $1 billion. And that particular fund you saw was a key factor in the stock price.
And then, we go on, and we could take a look at gold, for a long period of time that we would move with gold, and gold was up. We were up more than a gold stock. In fact, we were more profitable than most of the gold stocks in managing the gold funds and we were ranked number one in the world. And you can see these thematic funds, which we have, and thematic ETFs, which I’ll give you a little more color on, do all have this DNA volatility.
And I’ve included here oil, because oil is the most traded commodity in the world and GOAU, which is GO GOLD theme for gold stocks. You can see that gold stocks even after a smart beta factor analysis, the volatility is twice what the bullion is over a 10-day period. And the airlines is even greater, it’s at 7% over 10 days. And I think it’s interesting that’s predominantly because of oil. We know that in JETS ETF that the direction of oil when it’s above or below its 50-day moving average, there’s an inverse relationship to the airline index, because it’s the biggest cost line item. So, it’s just — it’s helpful for investors to recognize the DNA of volatility.
And when we made an investment in HIVE in September of 2017, we did it because — we launched the first crypto mining company, because that we were unable at that time to really launch a Bitcoin mining ETF and we had tried, but we were early to recognize that it wasn’t going to happen. And here it is, 2024, and it just happened this year. So, it was sort of advantageous that we were way ahead of that and we launched HIVE. And as you can see, its DNA of volatility is quite substantial from a daily basis to a 10-day basis. And we used to trade until the end of ’21 going into ’22 off of HIVE, our $3 million investment — a little over $3 million after interest payments from the conversion, et cetera, I think will tally up close to $21 million. So, that was a huge win for the U.S. Global shareholders. And it’s just capturing and recognizing that each of these asset classes have a different DNA of volatility.
Next, please. For the macro trend that we continue to wrestle with our mutual funds, actively managed domestic equity funds continue to see redemptions and continue at a much accelerated rate to shut down funds. And it’s interesting that the burden to shut down a mutual fund is so much greater than an ETF. It’s faster and easier to open an ETF. Fees are a lot less, and it’s easier to shut them down if your theme is not working. So, it’s important to recognize where you can see trend changes and what’s really positive is to see the growth since — particular to ’22 in actively managed domestic equity ETFs. Before it was — you could not get seeding of them, it was hard to attract assets, but that’s all changed dramatically.
Next, please. Warren Buffett highlights the value proposition of buying back one stock as a value accretive prices and it benefits all shareholders, not just the biggest holders. And I am the biggest holder, so it doesn’t just benefit me, it benefits all shareholders. And Warren Buffett celebrated his 94th birthday on August 30th, and his brain is blown and gone. He went through $1 trillion market cap. He has almost $300 billion in cash waiting for that correction to take place with the inverted yield curve that’s just finally seemed to have end. But here’s a brilliant mind and I look at that as most important when you’re having a Board of Directors and you’re having other people around you that they have this tremendous both explicit and tacit knowledge.
Next, please. So, why buy back our stock? The company believes the stock is undervalued and therefore buys back shares of GROW when the price is flatter down from the previous trading day using an algorithm. This is part of the company’s two-pillar strategy to enhance shareholder value by increasing the dividend as well as buyback amounts per year. We reassess this on a regular basis, the Board does, but there’s no rash decisions to go and buy back and privatize or big dividends. We’re much more cautious and prudent of how we’ve managed the capital and look for the creation of another product that captures the imagination in the thematic world for investors.
Next, please. So, this is sort of a visual of showing you the total dollar amount of buying back the stock. The stock has come lower, and in fact, we’re buying back more stock, because we believe that it’s undervalued. And so, that’s what we do on a regular basis, buyback, and I think it’s a very strong progression as you can see from ’22 to ’23 was almost a three-fold increase and since ’22, it is about a — close to a five-fold increase in stock buybacks.
Next, please. So, growing dividends. We have paid a monthly dividend since 2007, year before the financial crisis. We weather through those crises and other ones and have maintained that monthly dividend discipline and it gets reviewed on a quarterly basis by the Board. The yield is 3.5% based on its monthly paying today, which now makes it more attractive relative to bonds that are — for the same time period, but let me explain that in a second.
Next, please. A look at fiscal year 2024. Company has steady cash flow despite challenges in macro market environment, in particular for mutual funds, and I’m going to go into more explicit detail on our JETS ETF. And the company has maintained a strong balance sheet, which includes both cash and other investments and the company continues to buy back stock on flat and down days and pay monthly dividends.
Next, please. As a CEO and CIO, I own approximately 19% of the company, and I have approximately 99% of the voting control. That is a structure that was pushed decades ago by the SEC that someone, one person or a trust of some form has to have the voting control. Otherwise, every time the shares change too many hands and more than 20% of the shares change hands, you have to go with a proxy to all the fund shareholders, and that would just be foolishly expensive. So, it creates a two-tier system. But we run and have always run U.S. Global with this discipline of having three Independent Directors to be able to make decisions and have various subcommittees and detailed processes for compliance and outstanding corporate governance.
I’m the only Director that is both management, and the other three are all independent. And the other three, all have tremendous experience. Our Chairman is both a CPA and an attorney with decades of experience in the capital markets. And Roy and the other — Jerry Rubinstein and Roy Terracina also has tremendous experience in capital markets. And Tom Lydon, who has built a very successful newsletter at business and then into indexing and sold that business. He is Mr. ETF, was very early on capturing that trend. So, I think the Board is an outstanding Board and they understand the capital markets and the creation and the issues from launching a product to maintaining a product in the capital markets.
Next, please. But something that at U.S. Global that we’ve adopted is what’s called quantum mental research. And quantum mental research is a fusion of quant math along with fundamental analysis. And we try to capture these thematic trends and themes being early on that, they basically enable investors to capitalize on discernible trends and themes tell a story. We’re very early on catching the China explosion and growth and demand and commodity demand. And we’re also the first to come out with the Eastern European Fund. The Eastern European Fund went through the crisis of ’98 when they defaulted Russia, defaulted on their sovereign debt, but it was after the wall came down, I said something big is happening in — the Berlin Wall came down, as well known. To me, it was interesting to see that this trend did grow and it grew as capital markets also embrace the growth of the idea of a euro and we were early. That fund grew to over $1.2 billion. It was a huge, huge win.
But then geopolitical events take place, and it was in 2000 — after President Obama was inaugurated, we have Putin invade Crimea and then pulls back out and then, once again, he’s attacked again. And we’ve seen, it doesn’t matter if you’re the top-performing Eastern European Fund, Americans as a whole are not interested in speculating anything in Eastern Europe. And we’ve also seen one of the first to have a China region fund that the sentiment — the negative sentiment towards China and to Russia and surrounding areas has been immense on the psychic of investors and the sentiment does play an important role that a lot of quants look at different factors like D. E. Shaw likes to call ghost trades, where they look for unusual, but people don’t at the first look at as a factor that’s driving investment decisions.
But last year, in part of our streamlining, we shut down two funds, and one in particular was the most profitable, was our Global China Fund as running a business and our Global Emerging Europe Fund was also very profitable. But these are billion-dollar funds that just shrink. And we all know what happened to — we were very fortunate that we didn’t own any of the Russian stocks. We sold them just before the last invasion and it didn’t really matter. We protected shareholders from losing millions and millions of dollars, and there was — the sentiment was so pervasive. So, we shut them down. And this is what we don’t control.
What we do control in a smart beta 2.0 world is we control based on regressional detailed analysis, looking at up and down cycles for a minimum of 10 years our investment process, and we review it every quarter to be vigilant and rigorous in our disciplines, and that’s what we control. And we control the decision that we believe this is a good theme and we’re going to invest our time and effort into it. So, these two particular products were amazingly profitable, great themes for us, but the world changed and it changed with two dictators.
Next, please. So, U.S. Global announces the merger of Europe-Domiciled Airlines ETF into Travel UCITS ETF, called TRIP, on the London Stock Exchange. We’re excited about this. It’s different than JETS in respect that it’s — the index [order falls] (ph) and it includes the particularly these cruise lines stocks, which have been on Tear and IBD, but I think — and hotels and luxury hotels that includes, whereas JETS is more focused on transportation of people and all the infrastructure that goes around the flying of people to go and enjoy one of these cruise trips in Miami. But this is exciting for us, but all these things cost money and they did impact our operating cash flow in the past year. The idea of shutting down funds, changing them, the proxy process is very, very, very expensive, and the cost of acquiring and putting these assets together. But we’re really thrilled about what’s taking place, especially as I can go in more detail about the thematic of airlines and travel.
Next, please. Our strategy and tactics now create thematic products that are sustainable using a smart beta 2.0 strategy. This requires rigorous back-testing, often way over 10,000 hours, and continuous testing each quarter. The U.S. Global Investors, our mission is to make people feel financially happy and secure that their wealth is consistently growing. But we don’t take care as an asset manager when to move in and out or when to try to time or the rebalance of the asset — different assets, bonds versus stocks, but we do provide the products for you as a RIA or you as an individual investor to go ahead to use those products. And three is to strategically buy back stock and use an algorithm on flatten down days to do it. Four is to manage to preserve our cash for future growth opportunities and market corrections. And five is M&A activity to acquire other funds. And we are looking and we are pretty vigilant in that discipline of looking at potential acquisitions and then grow our subscriber base and followers. We think that that’s important for the branding and the creation of a new product.
Next, please. Mebane Faber has a fund group and he really popularized the total shareholder yield is a better approach to yield investing. And he looks at it — what you do with your free cash flow.
Next, please. So, the shareholder yield is dividends plus buybacks plus debt reduction. And since we don’t have any debt, it’s really dividends and buying back stock divided by the market cap gives you an overall yield and you try to compare the shareholder yield in the capital markets to which people would pay for government bond yield.
Next, please. So, our total shareholder yield is very attractive at 9.41%.
Next, please. Because when you look at the five-year treasury yield and interesting enough that’s 4.33%, and most dividend-paying models are based off the five-year risk free treasury yield and most CapEx for spending for a real estate development or a new mining project or building a refinery, it’s up a 10-year yield. And it’s good to see that the five year is below the 10 year. Not too long ago, it was above, and the two-year was above them, which gave that inverted yield curve. And I’ll talk a little bit more about that. But to grow as a shareholder yield, buying back our stock and paying out dividends, it’s a much more attractive overall return on to shareholders’ money.
Next, please. So, these are our two other companies I think are important. They’re much bigger than U.S. Global. And it’s interesting for me to see that Invesco that 40% of the assets are the QQQ ETF. And just to compare their price to book and return on assets and pre-tax margin, and as you can see, dividend yield and price to cash flow. WisdomTree is 100% ETFs. We’re now — 86% of our operating revenue is coming from ETFs. But you can see on a price to book, WisdomTree trades at a much higher valuation and the return on assets, ours has dropped from — theirs is 8%. We were higher, and that can change based on your free cash flow, which is going to change based on the assets you have. And then, we have the pre-tax margin. You can see that Invesco has the lowest number. And the dividend yield, Invesco’s dividend yields in fact higher than ours, but I don’t believe their total overall shareholder yield is, but their cash is higher, but we pay monthly. And I also think that our price to cash flow is higher because of an increase of buying back stock and dividends and restructuring and streamlining our funds. I think all these things do impact your overall cash flow.
Next, please. Current share repurchase program for the fiscal year ended June 30, we’ve repurchased 767,751 Class A shares using cash for approximately $2.186 million.
Next, please. But what do we want to show you here? Well, what’s interesting is that during this time period, we had an explosion in two of our assets. During COVID, we had close to a 100-fold increase in the assets of JETS. And I don’t think there’s many fund groups that have such, even one fund. And I think I’ve gone through now five funds that I’ve seen and built and created that gone over $1 billion in assets. And this — we maintain the branding of this particular product. It was the only product. And when the crisis hit with COVID, it all of a sudden was fell in love with by so many investors betting that in the next two years to four years, there’ll be this epic explosion in the growth in revenue and it did occur.
So, as you can see from March 2020 to about September 21st — going to March 22nd during that time period, just had a huge growth in assets coming into it. And also the particular fund itself was in the 30s, COVID hit, it fell to 12 and then went to 28. What’s happened since then is like that ghost sentiment factor that appears to be inverted yield curve, I’ll give you some more color on that, but what’s important here is just to see the downtrend in the assets that we own in JETS, even though it’s gone up in value and price, the overall number of shares outstanding does impact what GROW is trading at in the sentiment of quarterly numbers.
Next, please. So, this is another way of looking at the explosion in assets under management to $4 billion and trailing off to a little over $1 billion-and-change. But most of that decline has taken place with the airline product.
Next, please. So, you scratch your head and you ask why, like what are you doing here? You’re the basic — best product out there, smart beta 2.0 has outperformed any global airline index by a wide margin. The business itself is doing well. The airlines are packed. And if you take a look at this data point, during COVID, TSA started reporting how many people they were clearing every day. And before COVID, a year before, there was 2.5 million people a day were being cleared, 2 million domestic travel, 500,000 people inbound from Latin America, Europe and Asia. And it fell out at 80 — I think that should be 80,000 people in one day, was a data point. And then, it started to go up. And to me, it’s most interesting to see that has now surpassed 2.5 million and hit recently 3 million people in a day are traveling. So, we are seeing since December of — if we go back to June of ’22 on this visual from like roughly 2 million people a day to 3 million people, that means the airlines — their price of tickets aren’t going down. They’re making a lot of money.
Next, please. So, I went and did this analysis for the shareholders and as I show you that over a four-year period, the four biggest airlines that represent 65% of all travel in America, these four, and you see Southwest, United, Delta and American and on average the revenue grew 840% over four years, and over two years they grew at 15%. The EBITDA grew over the four-year period, 154% for Southwest, [209%] (ph) for United. On average, it grew 178%. So, we’ve had big increases in compensation to pilots and stewardesses and they still get these strikes taking place, but the average pilot makes a lot more money than they ever did pre-COVID, substantially more. And we’re seeing that even over the past two years, which is more important for me is that even though revenue grew on average 15%, which is much stronger than the economy grew and EBITDA grew on average 25%, we’ve had redemptions out of JETS. And that was sort of the bewilderment of trying to understand if we’re there every day in social media and doing interviews all the time, what is the sort of the apathy towards this asset class?
Next, please. And it’s not really so much, say, competition coming in to compete against it. It has to — the biggest thing we can see was this inverted yield curve and we’ve lived with this inverted yield curve for the longest ever on record, 783 days. So, I went back and did some research and looked at the airlines, going way back and trying to see what happened when we went through this negative yield curve and what did happened with airlines and they do sell off. There’s just a negative sentiment towards this industry when you have an inverted yield curve, and the good news is it reversed last week.
Next, please. So, another sort of visual to help you grasp what’s been taking place. As you can see, JETS market cap has been declining along with the two-year yields above the 10-year yield. So, you have an inverted negative yield and that’s when the airlines have a negative sentiment. The negative sentiment is this worry and this doubt that a big recession is coming or soft landing is coming or a hard landing is coming, so many forecasts of this big recession. So, this has impacted the sentiment and that’s just what’s taken place in the capital markets.
Next, please. So, one of the things we want to share with you in the world of airlines is oil. And what we have found in the ecosystem is that there’s lots of hedge funds that trade various airlines going short, long, and quite often they want to short when oil surged above the 50-day moving average, immediately they start shorting the airlines that have no hedging program like American Legion. And so, with that, it gives them a position that they think there’s going to be compression, but they would use JETS as their hedge and they go long JETS and short American Airlines and all of a sudden American Airlines would start to take off because oil has fallen below the 50-day moving average and we would get a redemption. We know and we see this flow of funds around the price of oil and that’s why in this presentation I try to explain to you, so the inverse relationships that happen.
Next, please. So, another indicator we write about every month and we talk about the world is PMI, Purchasing Manufacturers Index, is a forward-looking indicator, whereas GDP is behind us, is looking behind, it’s not forecasting the future, and it’s very important for the world of gold and commodities.
Next, please. And if you’re not a subscriber to Investor Alert, I highly recommend it, especially when we update and comment on these. But I thought it was interesting for me to take a look at ISM Manufacturing, which is the Americas PMI and not the global PMI. And anytime you have the PMI falling going into an election, quite often, you run the risk of a changing of the guard. And it’s just really interesting to see that PMIs have gone negative from the U.S. because of global PMIs are negative, in particular, sort of China and Europe. Europe has been in a much more severe recession. And I thought it was also interesting that China today announced they’re going to try to raise $2 trillion in bonds in Europe. And so, the anti-boycott by Americans of deploying capital and then want to tap into owning U.S. bonds.
Next, please. So, this is the headwind and the PMIs are below the 50, and this is a psychological tool that’s significantly used by commodity hedge funds as a six-month indicator for job creation. Its decline is also indicative of all of a sudden the bad numbers coming out in employment and the restatement of employment for the past five months in a row is really saying that something else negative has happened because the PMIs were falling, the global PMIs. And you can see that a big from 54 down to September 22nd, that big drop, a lot of that was driven by China, still had lockdowns, and Europe. America was the only strong country at that time. And then, as China tried to find the bottom, and Europe, we’ve started to slow down.
Next, please. So, smart beta 2.0 investing is our quantum mental investment strategy. I mentioned to you earlier, it combines cutting-edge technology with robust data analysis to help optimize returns and manage risk effectively for our shareholders. We will attend — Southwest Airlines is having an Investor Day in Dallas and we’ll have several analysts and that’s sort of quantum mental or fundamental approach of going to see it and doing the quant approach looking at the math of markets. And we believe the use of smart beta 2.0 factors in our thematic fund lineup sets us apart from our competition and the quant approach back-tested thousands of hours over decades of data to determine the optimized portfolio, construction and factors. So, the stock factors for picking a resource stock versus a luxury stock versus airlines, they’re all different factors that give you a stronger probability of alpha.
Next, please. And it’s dynamic because it rebalances every quarter. So, this is a really important validation of this system that we have created and this is going up against the New York Stock Exchange Global Airline Index. And as you can see, they’re both down over 12 months, but we’re off substantially less than what New York Global Airline Index is. And if we go back over a further time period, on the next visual, I mean, it’s quite significant. We have fees and these indexes have no fees. Next slide, please. And this is going back since inception and it’s more than 20% ahead. So, to put that in the context that this model even after fees has done an outstanding job for shareholders and there’s some other real uniqueness about this particular product.
Next, please. So, U.S. Global, even with all these challenges of getting proxies out, restructuring, shutting down funds that aren’t working, merging, acquiring other funds to build up our footprint in England, we turn around with our journeys to expand in Colombia. So, JETS launched on the New York Stock Exchange in 2015, then we went to enlist in Peru and Mexico, and just 10 days ago, we were in Colombia and we launched in Colombia. Now, why are these countries important? They’re important because pension funds are asset allocators and the theme of airlines is very significant as a small — this product, this unique product captures about 9% of the world’s GDP. It captures nomadic [coders] (ph) around of the world. It captures this year, I think it’s going to be something like $2.5 trillion estimated in bookings for the airlines, for business and tours.
Indirectly and directly, this particular product captures 9% of the global GDP and it’s smart. It’s rebalancing every quarter. It’s recalibrating every quarter. It’s a dynamic rules-based mechanism that’s done exactly what all the back-testing shows, it’s resilient and we’re thrilled about it. So, now we can focus when you go to these other countries to go and knock on the doors of pension funds. And there’s less than 10 in each of these countries to knock on for their asset allocation to take a look at airlines. And the other part that’s important for the investors is that these three countries, Mexico, Colombia and Peru, have politicians who are pushing tourism. They’re doing everything to build their tourism and trying to lower their carbon footprint by slowing down or stopping exporting of coal and replacing those jobs with tourism.
Next, please. So, there it is, we got ring — we’re able to ring the bell in Colombia and it’s the first time they’ve done this in such a big way and it was very exciting.
Next, please. So, Colombia has really truly expanded the number of daily flights from Europe and North America. I was impressed how much easier it was to fly there through Miami on American, and I think they’re seeing in Cartagena 20 flights a month, in Bogota, 200 a month, international flights coming in from outside. So, it’s very positive what our idea and our vision was to create a moat around this particular product for its uniqueness. And that’s what we’re doing.
Next, please. 40 million workers globally currently describe themselves as digital nomads. That’s a very big demographic study that when the snow comes in Chicago, they want to go to Mexico or Colombia, in particular Medellín or they’re going to Buenos Aires, and it used to be just snowbirds for retirement going to Texas and Florida and driving down the interstate. Now, this is a complete different workforce that wants to make sure there’s inexpensive Wi-Fi, they want warmer weather and they fly back and forth.
Next, please. The airlines industry is forecast to contribute $2.5 trillion to the U.S. economy.
Next, please. And this data point really amaze me that 1 million people go to the airports every day, so the whole world functions. All the parts, all the workers, they’re all involved with planes coming and going, landing and taking off, preparing, giving you a coffee at the Starbucks at the airport. You add up all those workers to make the global airline ecosystem function. It’s about a 1 million people work every day.
Next, please. GO GOLD theme that makes gold attractive. This is debt and as a global debt continues to make all-time highs, a popular term in crypto, ATH, all-time high, it attracts gold bugs and it attracts Bitcoiners and it attracts predominantly people interested in alternative assets.
Next, please. Another sort of data point you see often for GO GOLD theme is federal government interest payments have crossed above $1 trillion and that makes people worry that the government is going to continue to debase the currency. So, it puts in a good position for the gold funds.
Next, please. So, gold equity ETF fund flows, it just shocks me, just like the JETS does, even though the industry is doing so well is this visual is showing that gold makes an all-time high and the largest ETF and gold stocks actually had its redemptions. And this is like an apathy towards the asset class, even though they have high free cash flow. And that’s something that we just scratch our head and think that we have to wait until the inverted yield curve has taken place while it has and next is the election. Is that the negative sentiment that’s driving sort of the concern? I do not know, but I do know that there’s very strong correlations with inverted yield curve and sentiment.
Next, please. So, GOAU ETF sees a positive climb, it’s up 14%. Next, please. But the assets under management, went up to $120 million. They’re just under hovering around $100 million and this is over the past five years. So, we’ve had a good rally, but just the apathy and during this period of launching this, it’s outperformed the GDX ETF. So, there’s a smart beta 2.0, it’s done its job, but it’s still the sort of apathy towards the gold equities.
Next, please. So, this is showing you how it’s done against the other products that are out there as you can see since we launched it, it’s done a good job of driving fund performance using that smart beta 2.0.
Next, please. So, we made this investment, because we could launch an ETF. We converted into a basically a note and that note had prepayment, 8%, which is a very attractive yield at the time, especially because yields were — five-year yields were less than 2% and we were able to get an 8% yield on that piece of paper. And we also in that structure, we’re able to get 5, sorry, not 5, but warrants with it and the warrants really were out of the money and they don’t have any intrinsic value. But on accounting purposes, you have to take a paper value for them using Black-Scholes and Lisa can give you more color on that. But that’s gone, they’ve expired. What’s important is that that piece of paper generated an additional approximately $3 million in interest payments. So, that investment of $3.5 million going to $21 million over a four-year period is a heck of a score basically for — so, $18 million, then $3 million of interest payments. So, overall, it’s a significant return on invested capital.
And next, please. And the growth of JETS, as being a unique-only product go to, and I think it will continue to be its unique product, and as we continue to tell that story. GROW is approximately, it says here, $2.56, fiscal year, it says about $1.9 billion in assets, $11 million is its fiscal operating revenues.
Next, please. Earnings per share, as you can see, they move around, they move with realizing gains or realizing the higher cash flow. And you can see from here that what the numbers are.
Next, please. Our annual operating income was negative and that’s because of proxy costs, so expensive and time consuming and acquiring the TRIP ETF to merge with our JETS ETF and reconfigure that, so that we had more than $20 million of critical mass on the London Stock Exchange. So, we’re happy about that decision.
And so, next visual, please. This is Lisa Callicotte, our CFO, and she’s going to go through more granularity. Thank you for all of you for your patience listening to my long-winded presentation on what makes us unique and special and what’s driving the capital markets. Next, Lisa, here’s your show.
Lisa Callicotte
Thank you, Frank. Good morning.
First, I’ll start with a brief discussion of our compensation structure. We have a compensation structure that we believe supports our value of recognition of achievement and being performance and results oriented.
If we go to the next slide, you can see that our employee base salaries have historically been modest, and employee bonuses are tied directly to individual and team results. Our CEO receives an executive bonus based on operating earnings that are capped at a predetermined amount. He also receives a bonus on annual net realized gains on investments and a bonus based on fund performance bonuses of our investment team connected to the performance of our bonuses — or our funds, excuse me. This structure aligns our CEO’s interest with that of our shareholders. It encourages efforts to increase average assets, which increases revenue and operating income, as well as only rewarding net realized gains on investments. Therefore, mere fluctuations in the value of our corporate investments held is not included in the executive bonus calculation. Only when investments have a realized gain recognized are they factored into the executive bonus.
Now, on Slide 57, we see our financial highlights for the fiscal year 2024. Average assets under management were $1.9 billion for the fiscal year, operating revenues of $11 million and we had net income of $1.3 million or $0.09 per share.
Slide 58 notes our breakout of earnings. We have operational earnings that consist of our advisory fees, and we have other earnings which are mainly consist both of realized and unrealized gains and losses on our investment holdings. Both of our advisory earnings and our investment gains and losses fluctuate based on market forecasts.
In the next few slides, you will see more detail of our operations. Beginning on Slide 59, our total operating revenues are $11 million for the year, which is a decrease of $4.1 million or 37% from the $15.1 million in the prior year. The decrease is primarily due to decreases in assets under management, especially in our JETS ETF. Operating expenses for the current quarter were $11.5 million, relatively flat compared to prior year. And as Frank noted, in the current year, we have some higher fund expenses related to the proxy costs for eliminating our equity mutual fund performance fees and our European UCITS merger costs. Both of these are incentives to help us in the future. The removal of the performance fees will cause less volatility and the mutual fund advisor fees, and the fee will be more consistent with other mutual fund fees. The European UCITS merger increased our UCITS assets under management, and the fee increased from [65 bps to 69 bps] (ph).
On Slide 60, we see our operating loss for the year ended June 30, 2024 is $480,000. It’s an unfavorable change of $3 million compared to fiscal year 2023. Other income increased $1.8 million compared to the prior year, mainly due to higher investment income in the current year. In the current year, we have lower realized and unrealized losses on equity securities versus the prior year. Net income after taxes for the year was $1.3 million or $0.09 per share, which is an unfavorable change of $1.8 million compared to our net income of $3.1 million or $0.22 per share in fiscal year 2023.
Moving on to Slide 61 and 62, you can see we have a strong balance sheet. We have high levels of cash and securities.
Now, on Page 63, you can see we have no long-term debt. The company has a net working capital of $38.2 million, and a current ratio of 18.6 to 1.
With that, I would like to turn it over to Holly to discuss the marketing and distribution initiatives.
Holly Schoenfeldt
Thank you, Lisa.
All right. On the first slide in my section, I just want to quickly point out a stat about our website traffic during the fiscal year. As you can see here on the map, we had nearly 400,000 readers from around the world visit usfunds.com. Many were repeat visitors, but we had even more new visitors who find our content from third-party syndication primarily. So, we’re really proud of that.
And on the next slide, we are also proud to report that this year we hit 10,000 subscribers on our YouTube channel. This is primarily organic growth, and now we have actually surpassed this number. So, if you haven’t had a chance to check out our content here, I highly encourage you to do so and subscribe so that you can get an update anytime any new videos are posted.
On the next slide, you will see here some of the videos on our YouTube channel. We love educating our shareholders through video content, and we do so on various topics ranging from gold to bitcoin to airlines and luxury goods.
All right. Moving on to the next slide, I want to highlight some of our most popular Frank Talk blogs so far in 2024. The Frank Talk blog is actually one of the very first financial blogs out there, and in 2024, it celebrated its 17th year in publication. Signing up is completely free at usfunds.com, or you can also subscribe to the Investor Alert newsletter, which comes out every Friday afternoon and is a weekly analysis from both Frank Holmes and our entire investment team on the market moving events for that week.
Moving on to the next slide, this is just a quick snapshot of our total subscriber growth over 12 months. As you can see, not only are our major social platforms growing consistently, so are our Frank Talk and Investor Alert subscriber list. So, this is something we’re very proud of, and they all serve as an excellent way to communicate to our current shareholders and, of course, potential shareholders.
So, finally on the next slide, I do want to encourage you all to follow us on all of these platforms just so you’re up to date with what’s going on with GROW, our funds and, of course, the broader market.
So, just as a reminder, as we conclude today, if you do have any questions, please email those to [email protected], and we will gladly follow-up with you to get anything clarified that you may need more information on.
Thank you all for tuning in today, and that concludes our webcast summarizing the fiscal year-end 2024.
Question-and-Answer Session
Q –
Read the full article here
