U.S. Global Investors, Inc. (NASDAQ: GROW) (the “Company”), a
boutique registered investment advisory firm with longstanding
experience in global markets and specialized sectors, today
reported a net loss of $1.1 million, or $0.08 per share, for the
quarter ended September 30, 2018. The loss is primarily due to
investment losses related to decreases in unrealized gains and a
decrease in revenues, a result of a decline in assets under
management (AUM).
Adoption of New Accounting Pronouncement Increased
Volatility of Earnings
The most significant contributor to the quarterly net loss was
related to the Company’s adoption of a new accounting
pronouncement, ASU 2016-01, Recognition and Measurement of
Financial Assets and Financial Liabilities (“ASU 2016-01”), that
changed how unrealized gains and losses of certain corporate
investments are recorded. Starting in fiscal year 2019, changes in
the fair value of the Company’s investments formerly classified as
available-for-sale are no longer reported through other
comprehensive income, but rather through earnings. This change in
accounting results in investment income (loss) being more volatile
quarter-to-quarter.
The impact of this change in accounting to the first quarter of
fiscal year 2019 is that $954,000 in losses were recognized related
to declines in unrealized gains on securities that were formerly
classified as available-for-sale. Of this amount, $987,000 was
related to a decline in market value of the Company’s holding in
HIVE Blockchain Technologies Ltd. (“HIVE”). It is important to note
that, despite a decline in valuation in the current quarter, the
market value of the Company’s investment in HIVE is $2.2 million
higher than our cost. HIVE is in the business of mining virgin
cryptocurrencies, principally Ethereum and Bitcoin. Cryptocurrency
markets and related stocks have been, and are expected to continue
to be, volatile. The mining of cryptocurrencies, which are part of
the blockchain ecosystem, is considered an early stage, high-risk
industry, and the nature of mining is expected to evolve.
Assets Under Management and Advisory Fees
Advisory fees fell by $263,000, or 18.4 percent, from the same
three-month period last year, due to lower AUM. Average assets
under management (AAUM), including Company mutual funds,
exchange-traded funds (ETFs) and funds managed by Galileo Global
Equity Advisors Inc. (“Galileo”), were $623.7 million for the
quarter ended September 30, 2018, compared to an average of $761.6
million for the same quarter in 2017. Total assets under management
were $600.4 million, versus $771.5 million a year ago. The Company
has a 65 percent interest in Galileo.
Adequate Liquidity and Capital Resources
As of September 30, the Company had net working capital of
approximately $15.5 million and a current ratio of 13.3 to 1. With
approximately $6.0 million in cash and cash equivalents, and
approximately $14.3 million in marketable securities, U.S. Global
Investors has adequate liquidity to meet its current obligations.
The Company has no borrowings or long-term liabilities except for
deferred taxes.
Active Management Could Help Investors Take Advantage of
Rising Volatility
“Nationwide, actively managed mutual funds continued to see
accelerated outflows in favor of passive vehicles such as ETFs,”
comments Frank Holmes, Company CEO and chief investment officer.
“In the month of September, for example, active funds in the U.S.
lost $13.7 billion, while passive funds attracted $42 billion in
inflows, according to Morningstar data. Jeffrey Ptak, global
director of research at Morningstar, reports that 2018 could mark
the third straight year of net negative change in the number of
unique mutual funds. This is a long-term trend that has affected
the entire mutual fund industry, U.S. Global Investors
included.
“There are warning signs of a passive index meltdown, however,
and I believe investors should be cautious about where they put
their money as we advance further into the late stage of this
market cycle, ” Mr. Holmes continues. “In a recent report, J.P.
Morgan analysts estimate that there’s approximately $7.4 trillion,
mostly concentrated in large- to small-cap equities, that are at
risk of passive selling pressure in the event of another
significant pullback. I believe high-quality active management, the
kind our firm provides, can help investors take advantage of rising
volatility.
“Outflows were most pronounced in our World Precious Minerals
Fund in the September quarter, as the price of gold fell close to 5
percent on higher real rates and a strong U.S. dollar. However, we
believe a price reversal could take place with faster inflation,
thanks to additional U.S.-imposed trade tariffs. What’s more,
investors should be aware that gold stocks look very inexpensive
right now relative to the broader stock market.”
New Accounting Standard Discourages Long-Term
Investments
“I want to reiterate that the biggest contributor to our net
loss in the September quarter was related to our adoption of ASU
2016-01, which changed how we account for certain investments,” Mr.
Holmes says. “Formerly, our investment in HIVE was accounted for as
an available-for-sale investment, and any unrealized gains or
losses in market value were not reflected in the Company’s income
statement. But that’s no longer the case beginning in fiscal year
2019. What I want shareholders to take away from this is that,
despite our reporting a net loss of approximately $1 million for
the quarter, the market value of our investment in HIVE is higher
than our cost by approximately $2 million at quarter end. However,
due to the accounting adoption rules, the amount of unrealized gain
as of June 30, 2018, approximately $3 million, will never be
reflected in our income statement.
“U.S. Global Investors is not alone. Other firms’ earnings,
particularly those of insurance companies, similarly look volatile
because of the adoption of the new standard. I believe this is
going to discourage long-term investments, since companies have to
record in earnings the short-term market swings of long-term
investments. ASU 2016-01 is part of the evolution toward
mark-to-market accounting in the last decade.”
Share Repurchase ProgramU.S. Global Investors
has continued purchasing its outstanding stock. For the three
months ended September 30, 2018, and 2017, the Company repurchased
1,000 and 9,199 class A shares using cash of $2,000 and $14,000,
respectively. The share repurchase plan may be suspended or
discontinued at any time.
U.S. Global Continues GROW DividendsThe Company
has continued to pay monthly dividends for more than 10 years. A
monthly dividend of $0.0025 per share was paid for the quarter
ending September 30, 2018. Subsequent to September 30, 2018, the
Board authorized a monthly dividend of $0.0025 per share for
October 2018 through December 2018, at which time it will be
considered for continuation.
Earnings Webcast InformationThe Company has
scheduled a webcast for 7:30 a.m. Central time on Friday, November
9, 2018, to discuss the Company’s key financial results for the
year. Frank Holmes will be accompanied on the webcast by Lisa
Callicotte, chief financial officer, and Holly Schoenfeldt,
marketing and public relations manager. Click here to register for
the earnings webcast or visit www.usfunds.com for more
information.
Selected Financial Data (unaudited): (dollars
in thousands, except per share data)
|
Three months
ended |
|
9/30/2018 |
9/30/2017 |
Operating Revenues |
$ |
1,223 |
|
$ |
1,490 |
|
Operating Expenses |
|
1,906 |
|
|
1,969 |
|
Operating Loss |
|
(683 |
) |
|
(479 |
) |
|
|
|
Total Other Income
(Loss) |
|
(905 |
) |
|
1,725 |
|
Income (Loss) Before
Income Taxes |
|
(1,588 |
) |
|
1,246 |
|
|
|
|
Income Tax Expense
(Benefit) |
|
(356 |
) |
|
10 |
|
Net Income (Loss) |
|
(1,232 |
) |
|
1,236 |
|
Less: Net
Loss Attributable to Non-Controlling Interest |
|
|
|
(83 |
) |
|
(34 |
) |
Net Income
(Loss) Attributable to U.S. Global Investors, Inc. |
|
|
$ |
(1,149 |
) |
$ |
1,270 |
|
Earnings (Loss) per
share (basic and diluted) |
$ |
(0.08 |
) |
$ |
0.08 |
|
|
|
|
Avg. common shares
outstanding (basic) |
|
15,144,884 |
|
|
15,182,651 |
|
Avg. common shares
outstanding (diluted) |
|
15,144,884 |
|
|
15,182,651 |
|
|
|
|
Avg. assets under
management (millions) |
$ |
624 |
|
$ |
762 |
|
About U.S. Global Investors, Inc.
The story of U.S. Global Investors goes back
more than 50 years when it began as an investment club. Today, U.S.
Global Investors, Inc. (www.usfunds.com) is a registered investment
adviser that focuses on niche markets around the world.
Headquartered in San Antonio, Texas, the Company provides money
management and other services to U.S. Global Investors Funds, U.S.
Global ETFs and other international clients.
Forward-Looking Statements and
Disclosure
This news release and other statements by U.S.
Global Investors may include certain “forward-looking statements,”
including statements relating to revenues, expenses and
expectations regarding market conditions. You can identify these
forward-looking statements by the use of words such as “outlook,”
“believes,” “expects,” “potential,” “opportunity,” “seeks,”
“anticipates” or other comparable words. Such statements involve
certain risks and uncertainties and should be read with corporate
filings and other important information on the Company’s website,
www.usfunds.com, or the Securities and Exchange Commission’s
website at www.sec.gov.
These filings, such as the Company’s annual
report and Form 10-Q, should be read in conjunction with the other
cautionary statements that are included in this release. Future
events could differ materially from those anticipated in such
statements and there can be no assurance that such statements will
prove accurate and actual results may vary. The Company undertakes
no obligation to publicly update or review any forward-looking
statements, whether as a result of new information, future
developments or otherwise.
Please consider carefully a fund’s investment objectives, risks,
charges and expenses. For this and other important information,
obtain a fund prospectus by visiting www.usfunds.com. Read it
carefully before investing. Foreside Fund Services, LLC,
Distributor. U.S. Global Investors is the investment adviser.
Gold, precious metals, and precious minerals funds may be
susceptible to adverse economic, political or regulatory
developments due to concentrating in a single theme. The prices of
gold, precious metals, and precious minerals are subject to
substantial price fluctuations over short periods of time and may
be affected by unpredicted international monetary and political
policies. We suggest investing no more than 5% to 10% of your
portfolio in these sectors.
Fund portfolios are actively managed, and
holdings may change daily. Holdings are reported as of the most
recent quarter-end. Frank Holmes has been appointed non-executive
chairman of the Board of Directors of HIVE Blockchain Technologies.
Both Mr. Holmes and U.S. Global Investors own shares of HIVE,
directly and indirectly. Effective 8/31/2018, Frank Holmes serves
as the interim executive chairman of HIVE.
Contact:Holly SchoenfeldtMarketing & Public
Relations Manager
210.308.1268hschoenfeldt@usfunds.com
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