U.S. Global Investors' (GROW) CEO Frank Holmes on Q1 2018 Results - Earnings Call Transcript

| About: U.S. Global (GROW)

U.S. Global Investors, Inc. (NASDAQ:GROW)

Q1 2018 Results Conference Call

November 10, 2017 08:30 AM ET

Executives

Holly Schoenfeldt - Marketing and Public Relations Manager

Frank Holmes - CEO and CIO

Lisa Callicotte - CFO

Susan McGee - President, General Counsel, and Chief Compliance Officer

Analysts

Holly Schoenfeldt

Good morning. Thank you for joining us today for our webcast announcing U.S. Global Investors' Results for the First Quarter of Fiscal 2018. I'm Holly Schoenfeldt. [Operator Instructions] Also you may download a PDF of today slides by clicking on the red handout button.

The presenters for today's program are Frank Holmes, U.S. Global Investors' CEO and Chief Investment Officer; Susan McGee, President, General Counsel, and Chief Compliance Officer; and Lisa Callicotte, Chief Financial Officer.

During this webcast, we may make forward-looking statements about our relative business outlook. Any forward-looking statements and all other statements made during this webcast that don't pertain to historical facts are subject to risks and uncertainties that may materially affect actual results.

Please refer to our press release and corresponding Form 10-Q filing for more detail on factors that could cause actual results to differ materially from any described today in forward-looking statements. Any such statements are made as of today and U.S. Global Investors accepts no obligation to update them in the future.

Now, let's go to Frank Holmes, CEO and CIO, for an overview of the period. Frank?

Frank Holmes

Thank you, Holly. As you can see in the first visual, with the stars U.S. Global is an innovative investor manager where hopefully you'll agree, especially after I walk through our thought process to investing in HIVE. And we do have a vast experience in global markets and specialized sectors, and I think that that helped us make that pivot move as strategically trying to jump into the blockchain build-out globally.

U.S. Global was founded as an investment club. The Company became a registered investment advisor in 1968. It was military, military -- a colonel in the Air Force that started the Company, and so it had long, long history of global investing in particular for gold. And we are highly recognized for our expertise in gold and continue to win awards and recognition for that expertise. Our strengths are we're a go-to stock for exposure to emerging markets resources and now digital currencies. We're noticing that the stock is moving up and down with HIVE and in HIVE is in sympathy with movements of blockchain cryptocurrency or digital currency market.

We're debt-free with strong balance sheet with reflexive cost structure and we have monthly dividends and return on equity discipline. In 2016, we're winners of the Mining Journal America's based funds, that was a global competition and there we won other rewards this year for recognition of the previous with a highest Sharpe Ratio by Lipper. So we continue to show that expertise in the mutual funds, and as I'll walk through there in the presentation, it's also changing that landscape that it doesn't really matter, if you're outperforming the ETF, it's just cheaper as better and performance is not as critical.

So, it's how markets are changing and hopefully I can walk you through some of the things that have sort of driven me to better appreciate the data, mining and how we're showing up Quants investing right across the spectrum to launching of high the blockchain technology. The top institutional holders of GROW and I want to thank them all for their courage and discipline and stay with us their loyalty. So thank you and next is, the dividends we paid monthly for 10 years. It's hard to believe that, isn't it Susan? 10 years and the current yield is, as the end of September when this was printed was 1.41, but as the stock has appreciated slow to slowdown that overall yield.

And we continue to purchase -- we repurchase stock as you can see, the Board approved to repurchase of up to 2.75 million of its outstanding common stock in the open market through the calendar 2015 for the three months ended September 30, 2017, the Company repurchased 90,199 Class A shares using cash of 14,000. We may suspend or discontinue at anytime and as evidenced by regulatory filings. Myself, as Frank Holmes, is purchasing shares of GROW pursuant to a Rule 10b-18 plan. We buy-in down days, it's a simple algorithm in that we developed and used over the years, so it's an interesting mechanism.

Next is the balance sheet, as you can see the balance sheet has changed particular the investment and blockchain technology. We invested $5 million, it tripled and then it went up 500% and then it went up and it kept going. So that little star at the top right-hand corner where you the logo for HIVE is -- if you had current stock market prices and you've bought it back, it'd be much bigger balance sheet. We're not able to sell this right away and there is no intention to sell it right away because of its uniqueness, which I'll walk through in a few minutes. The next visual is the earnings per share quarterly.

Lisa Callicotte, our CFO will walk through in more detail over this, but what's a real thrill is looking at past the five years. That’s a big uptick. And that's the success of a fund in Canada that invested in blockchain, that’s a hedge fund model and so it's been more detailed. Lisa can give you on it, but the best part is showing that our investment is sort of filtering through our income statement very modestly, but predominantly it's coming through our balance sheet. Our quarterly average assets under management remained stable, that's important.

And then additional data mining, from trading stocks to the digital currencies [Audio Gap] across the country I spoke at the Denver Gold Mining Conference at 1,100 professional CEOs and CFAs from all over the world that look at gold stocks and try to point out to them that this is sort of sentimental -- this is our clever one minute video, using Trump sentiment analysis to short stocks and currencies et cetera. It has been going on for a while in the gold space, and we have noted that and we see that some of these gold stocks will get hammered based on word choice.

We have known previously on a research, it was done 10 years ago. That is a certain words that are in the headline news that, that stock used to take two weeks and would decline from 11% 40%, I know what happens in two hours. And the reason for that as 60% of the stock market today are concentrating, the average hold is four days. Some of these, these particular tweet that it was commenting, it's usually one day.

And just for people to be aware and especially the gold world, and this particularly set of slides and visuals received the best presentation at the LBMA in Barcelona, a couple of weeks back. And they had 700 attendees, who were basically gold traders, jewelers, refiners from all over the world. I attended this event in Barcelona and this has really shocked people there that this -- our GROW are basically running on sentiment analysis and word choice, but that's where Google is all about. It's a NLP, natural language processing, but it's on steroids then it's all past and that's the good -- in one second, they were able to go shorter stock.

And the same time, they would go long and it's in every category. So the idea of using data for consumer products for marketing consumer products, rate down from trading stock on short-term period, is so incredible to witness how it's changing the whole landscape of capital formation and funding. And we are seeing this in a whole blockchain technology and cryptocurrency. Once again is digital, which you're seeing is applying digital tools to be able to gather information from words sentiment and trade the stock immediately, no matter what the category is. That’s how it's evolving.

And I am going to walk you through now to show you interesting psychology, that did you know that for more than a decade [gold] performed in the stock market. I mean it's more than two to one, shocks people. And then guess what in the year-to-date, it's also outperformed. But you wouldn’t think so, what I am asked to go so many these TVs programs because it's usually negative, it's always the white gold is going to fall. And that was really significant to me is that for base of negativity towards gold as asset class even when it's doing exceptionally well.

However, the cryptocurrency, I noticed buy bitcoin overtakes buy gold as online search phrases and this was an article this week on Bloomberg. And what's important here is that? On Bloomberg, I would say it is about 80% of the CNBCs and their programs are positive on bitcoin and blockchain technology, 20% of the time they're negative. But they're 100% negative on gold. So it's just recognizing that this is an idea and sentiment, is changing and it is growing with the naysayers everywhere.

The next visual is sort of Elvis is alive, it's sort of a cheeky response. I've been using this visual of explaining gold. And there is two demand drivers for gold, there's the Fear Trade and there's the Love Trade. I've used Elvis Presley for more than a decade, but recently the regulatory, the finders of the world come out and say, Elvis Presley is a public figure in no way relates to U.S. Global Investors. I guess he is alive, but it’s just this consumer’s growth of regulatory world. And I was talking to at dinner this week with Doc Rivers, the coach for the LA Clippers and he was coming at the NBA wants to go ForEx and that was slowdown again.

And I said, so what does that mean? It looks like traffic. The more cars in the road the slower the traffic goes even more reps on the court then the slower the game goes and fans don’t come and I relate that the more regulations just slows things down. And sometimes it becomes irrational. It’s more important for you to recognize that this is spurring huge crowed funding. This is spurring massive angel investing and this is why cryptocurrencies have raised $3 billion this year. And nationally, this is a big push and rightly so that we kind of get some type of regulatory rule making basically in this cryptocurrency world especially these new ICOs, they have surpassed IPOs.

I mean $3 billion print to these new ICOs, well there is no governance of any form or instructor. But the reason for that is that many times you controls on countries currency, you automatically get a black market. Anytime you raised taxes too high, people want to get paid with cash with some other form that they will work with trade-offs. So it’s just economics one-on-one, I remember that somebody is taking that and learnings would take so -- and so it makes this sort of to recognize this works into this home growth that’s taking place in the blockchain cryptocurrency world.

The next visual something to always remember GROW as a big volatility as plus or minus 48%, and it’s still less then cryptocurrencies. But the gold stocks are plus or minus, what is that means, it means 70% of time, it's a non-event for our gold funds, funds go plus or minus 40%. And that triggers for GROW. GROW is a -- its cash flow comes from our resource and GROW funds predominately as a big swing, and you can see that pattern and now our GROW flow expanded because we have this big investment in high.

But bullion, bullion is of same volatility basically as the S&P 500. But most of the time on television programs et cetera, it’s always as gold as so volatile and risky, but actually it’s not. And that’s why I’d like to point to investors, like to all of the managing expectations. But as we've built the story of, why do we to blockchain technology? I think it's important to sort of understand some basics and that’s why the next visual is so helpful and insightful.

[Presentation]

Frank Holmes

The banks are now engaged in blockchain proof-of-concepts. The blockchain could disrupt everything. And I just give you an idea that you can see the CME is front and center and they partnered up with the London, what they call the World Exchange for refining gold, and to basically give you a coin is backed by gold.

Nasdaq launched a futures market trading on bitcoin in Sweden and it too was the raving success. There was a substantial conference that was in Houston in last month that had Microsoft, McKenzie, and all of the major energy companies speaking and how they are going to put their data in the energy space in America, as the more data in Texas on energy than there is as the rest of the world combined. How do they put all that together and just to be able to transmit that data quickly and quick and inexpensively.

Next visual we're showing is the major banks have become bullish on cryptocurrency even when we have CEOs saying, it's corrupt it's fraud, but financial institutions filed the 2,700 Patents of blockchain technology. And what bitcoin has done is that basically it's like emails under the internet. It's open up the eyes of how you can actually transmit money, you can transmit contracts, you can trade stocks and et cetera, 24 hours a day. One of the biggest source of money going into Mexico or Philippines is remittance by workers in America, and they said money is a simple largest, cleanest form of foreign currency going into those two countries.

And as coming back for Americans' work effort, Filipinos or Mexicans working here sending back to their families. While they're sending back a $100 is really expensive under the Western Union. And under a bitcoin format, blockchain technology it would be $1 million dollar per 100 versus $25. So you had a something that's really remarkable that it is going to be a revolution to back-office through all of the banks and financial institutions. But what's really woken-up the world to blockchain technology has been bitcoin. And so what is bitcoin, as it is always the big question we get asked.

[Presentation]

Frank Holmes

So next question is, well bitcoin at a spectacular run and it must be a bubble. And this bubbleology has been around for while and it’s a good question to ask because it had this incredible move. What people have realized from bitcoin is a limited number of points, it's not like government continue to print money. It's capped and so what does that mean? Well, basically, Metcalfe's Law suggests that crypto price could keep pricing and that was the math that was to explain the value of the cable company. So as more people use cable, the value of cable went up geometrically or exponentially.

And this was also for the adoption of cell phones, more people that used it they are for the value of the cell phone network rose geometrically. It was easy than the finance towers for fast tracking, more numbers used to get drop calls all the time when it set at cell phones. And as the banks were reluctant to land and some of the valuations, it was a better security for lend against and also from a cash flow point of view, so they start building more towards, then this technology that allowed them be able to have less drop calls, it was a combination of both. So this is -- Metcalfe's Law is important because as more users are signing up to use bitcoin, the prices go up geometrically.

So some people are saying there will be $10,000 by year end and will probably go to $100,000 fast than you speak as more people use and adopt that. You can buy one coin and you can have it broken down on fracasos for buying Subways and Starbucks et cetera. And that's the hard part to as a lot of people don't realize and guess what neither did I, I was just shocked buy, how fast my learning curve has been and it had to really understand what's taking place.

The next visual is sort of validate what I just shared with everyone, this is a recent press release that showed up on coinbase, digital wallet users more than double at the beginning of the year. That's a 100,000 users in a single day, I mean you just think and which really important for our listeners is that it takes five minutes to open this account. Five minutes, you can't open a brokerage account or bank account in five minutes and that’s part of the phenomenal millennial. And of so much friction red tape, they just move away, they just move somewhere else. And I think this is lended to the idea of ICOs. You can make money in ICOs, you can make money and there's something like 2000 now, it's doubled the past year.

$3 billion has gone in this initial coin offerings ICOs and there'll be scandals they're hearing, but it's really that's not the issue. The issue is that it’s going to grow and crowd funding is big was estimated to be $50 billion globally last year. That's a big number and I've been to Benson, San Antonio Angel Investing, and seeing the bankers and lawyers all go back to the room, one page presentations, 10 slides, and the legal documentation stuffs at the back of the room and there's no big $500,000 cost of a prospectus or a $250,000 that stuff doesn't exist in that world. You have a Ph.D. making a good pitch and immediately they're able to raise $10 million and those who want to put it do the paperwork at the back. You had prominent bankers, CEO of JPMorgan locally, lawyers, accounting firms, I just knew all these people and I was just so surprised how this crowd funding has accelerated.

And then in this whole journey we're learning more about the spaces as to go to Consensus which is the largest conference in New York, and that's usually where the big gold mining conference has been. Well, I went to this one in May and it was just really blew me away, the keynote speaker was Abigail Johnson, the Fidelity CEO, little over $2 trillion on assets. And she urged digital currency more accessible for individuals, institutions, she has a rig in her office and she's been minting her coins. Her employees all have accounts it's a open architecture for a coinbase. And so in this her journey -- and in this process that was watching, as I was getting ready to launch our gold equity ETF GOAU, and New York Stock Exchange had invested in coinbase and I found out that USAA just up the street from us had invested in coinbase.

Since 2015 with the market value of $75 million, today is a unicorn with a value of 1.7 billion and so there's something that's been happening here from this crowd funding to the CEO of Fidelity advocating bitcoin, and so with that maybe much more comfortable. And then I went on to coinbase naturally the next visual had digital currency wallet, you can buy and sell, gives you the market value the cap, it’s very simple and easy to open. And the next visual is this simple one to show you that USAA which is the largest military insurance company in the world is a major employer in San Antonio and it has truly a global reach for all its military soldiers around the world in over a 100 bases so I think that when you see that Fidelity members are tracking their bitcoin wallets online and this is a visual to show you that this is how it shows up and they've written that I guess code that allows you to bleed into showing that you have bonds, equities, mutual funds, EPS and guess what you own some bitcoin or Ethereum like coin.

The next visual who accepts the coins as payments is another one that really impressed me when I found Starbucks, Microsoft, Tesla, Square, Dell, you could see Shopify, Bloomberg. We use Bloomberg in the office, they're all using in gift and you to e-gift, you can buy at GAP or Amazon, they do the conversion. And just recognizing that Wikipedia, you can donate the money to Wikipedia and they'll take bitcoins. So there is something that's going on, something forty major corporations are using it.

And then a couple of weeks ago, there was a story in Zero Hedge I think it was a recopy of an article that was in Wallstreet Journal that in Texas some bought a house with bigcoins and it was a couple of million home that was purchased with bitcoins. It really converts dollars but the fact is that you can do that. So the led me into getting a call from my friends, a long term friend, Frank Giustra. He said to my young guys and my Fiore Capital, they have this is a great idea they were telling, but I really understand and I just detailed, do you know anything about it.

And I was fortunate because I want to launch a blockchain cryptocurrency ETF, but all you did was run into cul-de-sac and that what's called the LaunchPad in Ontario, the OSE, talked some lawyers in the U.S. and the SEC lawyers and it's just -- they were so concerned about AML, anti-money laundering laws, superseded the launching of any pure bitcoin ETF or Ethereum ETS. And so with that, I as mentioned earlier I went to the presentations and I noticed that when I was looking at TEDx, that there is not one TEDx conversation on gold. There is not one TEDx on investing, but there are two pages on blockchain and cryptocurrency. And that means you have 2 million people from 180 counties a day downloading TEDx and looking at these presentation and they are very educated.

So, there is something big happening. There is something big that's happened right underneath my nose. And when I would talk to other people outside of my son and godson, it was -- this is big and especially my godson that had been involved in these cryptocurrency and done exceptionally well. So he made sure that I had to go some of these conferences, and it was eye opening for me. And so when the HIVE opportunity came along, I said, you know, I'll be -- I'm very, very interested in this and especially when I found out the strategic relationship is with Genesis Mining. And Genesis Mining is the largest miner in the world. Three guys, one is 28, the CEO, who finished -- he's a math wiz -- who finished university math by the time he was in finished grade 12 then the other mark -- two Marco and other Marco was a Ph.D. and theoretical physics.

And so you have interesting group that private company that is certainly growing to having up million people using those services especially at cloud service that biggest buyers are -- we need these computer graphic cards, the process and validate transactions. So they are the leader in the world and I mean the leader, they do 25% of all theory on validations and create new coins. And they also do 10% of our bitcoins in the world. So, they are the 800 pound gorilla and they would be the strategic relationship with this new company and they would own about 30%, and that gave me lots of comfort because I flew over to Zug and Zug was like Silicon Valley for cryptocurrency, the digital currency in the world and went to Munich drove from Zug to Munich and Zug is just so side of Zurich by the way and then drove over to Munich, met the principals, saw what they visualized and that why they're in Iceland where they would be doing property mining where it's safe jurisdiction, it's green energy and the cost of electricity has to be very, very cheap to be competitive in that weather.

So they were also in Sweden, they're looking any of the Nordic countries and there is mainly rational reasons for it, but I think the Genesis was really important to understand and what is this blockchain mining as it's called. [Audio Gap] I’m sorry for that glitch. We’ll get it figure out so that it runs smoothly. It’s really important to understand what is mining of a blockchain and this is one minute clip. It is very, very informative and we’ll get this -- when people review this, they can see it, but it was -- it was sort of the instinct for me was a meeting Marco Streng in the next visual, he is the Co-Founder and CEO of Genesis and you can see him TEDx, if he go to type in the Marco Streng. TEDx, you go watch his presentation, as he speaks about him and being in school and hearing a ping on his computers, bitcoin into a $1,000. And -- but I think the next visual show you that U.S. Global announces a strategic investment HIVE Blockchain Technology.

And I became the chairman and we put it in $5 million and we own directly putting 5 million for U.S. Global. And then I put additional in myself and went on the Board. What’s important is, is the relationship with Frank Giustra and in the respect the Fiore, particular because of Frank, his new company. But he was behind Silver Wheaton and I remember the feeling with the Silver Wheaton understanding that it was the first streaming royalty company in the world. It was the only royalty company dedicates silver and there was no other royalty company at the time in Canada. It was a unique proposition with high revenue per employee, high margins, high cash flow returns invested capital. And we saw that investment go from 3 million to 30 million to 300 million to 3 billion. And that was substantially greater than that and it has the highest revenue portfolio in the world as this for New York Stock Exchange.

So is -- this first mover advantage and I think that’s what identify and chat with Frank. This is a unique opportunity, we’re not going to be launching a crypto ETF or put things like this nature of fund, the any other product, it’s out there 33-34 corporation trust that's bought bitcoins and it trades at a 40% premium. And this would be just a unique proposition and we would be mining brand new coin, virgin coins, unpainted. And there are more valuables like mining 24 carat gold jewelry. And so I became very excited on that investment. So next is showing, introducing the HIVE Blockchain Technology.

This is an article that showed in Bloomberg and the HIVE has bitcoin investors buzzing. And the big reason for that buzzing is that there is no other public company in the world at this stage that people can go and buy and the stock market and get a clean way to play anything on cryptocurrency, so it's not that -- and I think it will stimulate the idea of other companies coming up but no one has the strategic relationship with Genesis, which is so important from a competitive advantage but slight of having that both but -- basically it's a mode around our business and it went from $0.30 to $1.50 that nearly institutions came in for a bought deal that doubled our exposure to coins.

And then it moved again and as it is more doubled again and we did another over a $30 million each time funding to it roughly expand the business model. And if all of the things work out through the forward-looking then it's always risk in forward-looking, but if they do workout the revenue of this company will go for the million in months and million a week and the cash flow and the margins were so robust that it is based on performance that and tax rates today and Ethereum and other currency prices today, it can generate $25 million of free cash flow.

So that's why I think you start to have this explosive move and we start institutions coming and that really understood NVIDIA. NVIDIA announced last night the 120 billion market cap, they are the biggest genesis and they are the biggest buyer of NVIDIA GPU cards, they are as I mentioned earlier, the 800-pound gorilla, and we are riding that and this is the way, a simple clean way to play this growth. I mean datacenters in this unique location. Next visual.

[Presentation]

Frank Holmes

Thank you. We can go back and watch the clip earlier on it embedded to the system on Genesis Mining and basically a rig, and what they do, it's a very insightful clean way to become more informed on this particular type of investment we made.

And this investment is floated it went to $1.5 billion market cap. And why, you know I mean ask, well there is no other company in the world that is operating investors as of this date a revenue cash flow generating model, that’s playing this accept and predominantly now when you look as small corporations as hedge funds, they are trading in theses currencies as hedge funds and there is Silicon Valley that’s behind 20 basis and New York stock exchange and best into Silicon Valley. But there is really no public company and this is the first public company. When I look also that the model, it pretty reminds me of a royalty company, so I'm very excited about this opportunity and it's going to be very volatile, the biggest thing I share with my answers. And we don’t have liquidity and if you want to sell and I think its January and February and so and myself, I just believe this is a huge opportunity.

And so with, I'm going to turn over to Lisa Callicotte our CFO, to give you more detailed analysis of the income statement and then any financial balances.

Lisa Callicotte

Thank you, Frank. Good morning. Before I summarize our results of operations, I would like to discuss the accounting treatment related to our direct and indirect investments in HIVE.

USGI through its wholly owned subsidiary, U.S. Global Investors Canada Limited directly owns 10 million shares of HIVE. These shares are included in investment securities available for sale on our balance sheet. And unrealized gains and losses on available sales securities are excluded from earnings and recorded in other comprehensive income as a separate component of shareholders equity until we realize. And these shares are restricted for resale until February 2018 and also subject to Canadian insider regulation.

USGI Canada also has an investment in Galileo Partners fund. This is our indirect investment. At September 30, 2017, USGI Canada owned 30% on the Galileo Partners fund and the Partners Fund owned 6.7 million shares of HIVE. The investment in the Galileo fund is accounted for on to the under the equity method of accounting. Under the method, the Company's proportional share of the fund net income or loss which primarily consist of realize and unrealized gains and losses on investment, decreased by fund expenses is recognized in USGI's earnings. Therefore our direct and indirect investments in HIVE are transferred very differently, and we will see that as I summarize our result of operations at quarter ending September 30, 2017. Beginning on page 39…

Frank Holmes

By the way sorry to interrupt there, the Galileo fund is 2 plus 20 funds and that was really important to recognize. So it's embedded gain, for a small fund, it's extremely profitability. You have to have the multibillion dollar fund and mutual fund to compete but what a small fund like this is generating.

Lisa Callicotte

Beginning on Page 29, we reported total operating revenue of $1.49 million for the quarter. This is a 25% decrease from the $1.98 million we reported for the same quarter last year. The decrease is primarily due to a decrease in average assets under management, mainly due to net redemptions and market depreciation. And it was somewhat offset by an increase in our EPS average asset. Our operating expenses for the quarter were $1.97 million, which is an increase 19,000 or 1% and primarily due to increases in expenses related to our EPS. We have an operating loss of $479,000 for the quarter ended September 30th 2017 versus income of $31,000 for the same quarter in the prior year

On page 40, our other income is $1.7 million for the quarter compared to $250,000 for the quarter ending September 30th 2016. The 1.5 million of this increase is related to our investment in the Galileo Funds accounted for under the FD method accounting. Net income attributable to USGI after taxes for the quarter is 1.27 million or $0.08 per share versus per share of $0.02 for the same quarter in the prior year.

Moving on to page 41, we see that we still have a strong balance sheet, we own our own buildings, we have cash and marketable securities at 24.5 million that combine to make that 71% of our total assets. As you can see trading securities decreased 2.2 million mainly due to the liquidation of trading securities to purchase available sales security.

Investment securities available for sale increased 11.5 million. This is the line item that includes our directly owned half shares that were valued at 11.4 million at September 30th 2017 and this value includes an unrealized gain of approximately $9 million that is reported in other comprehensive income as a separate component as shareholders' equity. As you can see on page 42, we still have no long term debt. The Company has a networking capital of 13.1 million and a current ratio of 12.6 to 1.

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

Susan McGee

Thank you, Lisa. As you can see on this chart a majority of our mutual fund assets are in emerging markets and natural resources and 30% are in domestic equities and fixed income. In its redistribution, we have more than three-quarters of our assets coming from retail investors and the other 25% from institutional investors.

Our sales and marketing efforts have continued to focus on our mutual funds including those concentrated on gold and natural resources in emerging markets and our exchange trade fund. In June of this year as Frank mentioned earlier we launched our first gold ETF, the U.S. level Go-Gold and precious metals miners ETF and in September we launched the sister ETF under the ticker symbol GOGO, GOGO. It was launched on the Toronto Stock Exchange in partnership with Galileo. It's our first ETF to appear in the Canadian market and we're especially pleased to bring our longstanding experience that we have in gold mining investment with Canadian ETF investors.

GOGO joins Jets and GO-AU our U.S. listed gold related ETFs for our offerings of smart bed installations. We do believe that investors appreciate the expertise that we offer and we are pleased that Thompson Reuters Lipper recognized us with the Lipper Award for 2017. Investors can find more information about all of our funds on our website usfunds.com. At the Company and our funds continue to receive an invaluable amount of viral publicity which we gain through media interviews, Frank Holmes often shares his insights with financial outlets like CNBC-Asia, Lindberg Television, CNN TV in Canada, to name a few.

We continue to receive recommendations by influential newsletter writers as well along with sharing certification of our award winning original content by third party publishers. And the new partners have a loyal followings and they see millions of visitors each month. Frank Holmes' CEO blog, Frank Talk, continues to grow in popularity, as well. His commentary is often featured by prominent publications, which includes Forbes, Seeking Alpha, ValueAll, Business Insider, and these have millions of monthly visitors.

Our investment team continues to travel around the world to share a thought leadership. And we so interact frequently with loyal followers through Facebook, Twitter, LinkedIn, InstaGram, and Pinterest. Kitco News, the biggest gold website in the world, with an audience of about 10 million monthly visitors, in partnership with TheStreet continues to feature our Gold Game Film show, with Franks weekly gold market analysis.

Since we began this show's we have aired 134 video episodes of the Gold Game Film. All this coverage helps us leverage our brand, by reaching millions of readers, viewers and potential investors. Our website usfunds.com was visited over 500,000 times from September 2016 through September of this year by investors from all over the world. We are known for our timely and balanced market insight and thought leadership, and we've been awarded several STAR Awards by the Mutual Fund Education Alliance.

We added three more awards this year including the best overall repo communications within this small funds category. The MFEA star award recognized excellent in investor education, and our weekly free investor alert newsletter has been named the Best Electronic Newsletter six times. Today, the Company has earned the total of 83 STAR awards. The investors can sign up at usfunds.com, and join over 40,000 subscribers, who are receiving our award-winning investor alert and adviser alert, e-newsletters and our CEO blog, Frank Talk.

So now I would like to open it up to questions.

Question-and-Answer Session

A - Holly Schoenfeldt

And as a reminder to our audience, you can enter questions in the control panel on your screen and you do we have a few questions already, the first of which I am going to give to Lisa Callicotte and that is. What are the lock ups on the HIVE's share?

Lisa Callicotte

Like that we have two different kind of investments. One is the directly owned 10 million shares of HIVE and that is restricted until February 2018, but it also subject to Canadian insider regulation. The Galileo Partners fund has actually multiple tranches and they have differing restrictions and those are going to be listed through about mid 2018.

Holly Schoenfeldt

Another one I can go to Frank and he kind of touched on it briefly, but are you worried that bitcoin and cryptocurrency space is a bubble. Can you explain?

Frank Holmes

I think on the Investor Day we commented on this a couple of weeks back that Metcalfe's Law and there's another law called Reed's law and I was recently presenting in Toronto, Ph.D. in behavioral finance, so as a Money Matters showed up and he's played this space based on Metcalfe's and Reed's Law which is really interesting to me. And he was commenting that as I said earlier, there it’s a geometrical -- most of these charts you see Bloomberg et cetera, they are not logarithmic charts, they're linear charts. So it looks a bubble. When you plot this on a logarithmic chart, it's a normal course.

So I don’t think it’s a bubble. Who survive? That’s always the great question like the 90s. There are so many companies out there like Ask Jeeves, they're history industry relative to Yahoo almost history. Google came out of nowhere and became the 800-pound gorilla. I mean just dates back when Google came out, there was no Facebook; and in 10 years, the Facebook grown. So I think, we don’t know what’s currency are going to survive, which will -- and now, there is a push by governments. Putin wants to have its own currency, cryptocurrency, and I think you’re going to see more and more countries get around this idea of a digital currency. So I don’t think it’s a bubble to agree that a lot of people just believe from looking out at a linear line.

Holly Schoenfeldt

Another question for Lisa. Well, GROW's exposure to HIVE directly affect the U.S. Global Mutual Funds at all?

Lisa Callicotte

Well, the U.S. Global Investors Funds and our ETF do not own shares of HIVE. But some of the Galileo fund including the fund that we are invested in to USGI Canada is that in HIVE.

Frank Holmes

But it’s not a mutual fund it's a special-purpose front. And it’s dedicated that and I think that the regulatory regime is just different Canada and we mentioned this other day the Board meeting is that, the credit investor can start in Canada with only $25,000, they don’t have to write a massive check. The rules like that make it differences in sort of formation of money, but it’s easy to create a special purpose funding Canada only for credit investors. That you can put on the platform like you do in the U.S. Mutual Funds for fund groups. And the responsibility is upon the broker that’s talking to client to put money in that mechanism is not here in the U.S. So it’s just a different mechanism. And so for that, they have a different set of guidelines and rules.

Holly Schoenfeldt

One more question for Lisa. When can HIVE gain, if any be realized?

Lisa Callicotte

Well, USGI and the Partners Funds will have to actually sell the HIVE's shares in order to realized gains. And as we discussed, there are restrictions related to resell and regulatory restriction. So really the timing of realizing the gain cannot be determined at this time.

Holly Schoenfeldt

One last question for Frank. With many investors attention shifting away from gold to bitcoin, what do you think that mean for your gold so get to mutual funds in each year?

Frank Holmes

I think that this whole ICO market is not really a threat to the gold. I think it’s much more a threat to investing. I think it’s a much bigger that the crowd funding that retail linear, it’s just doesn’t have a whole lot of tolerance for two days waiting open account to, so many checks and rules to trade thoughts versus they could trade ICOs 24x7, and it’s inexpensive to trade. And it’s just as I mentioned earlier, we have a big phenomena taking place in millennials, so now bigger than baby boomers. You have hock-up sites. You have -- so you have social values and believes have changed dramatically.

They just recently start buying, they're predominately renting because they want to be able to move, they want be able to move from one city, move from Austin to San Antonio and then from there move over to LA or something, it's more a transient world. And when they make money, they want to have this travel and experience around the world, so it's in different world. And I've noticed this question being asked there how fast can you sell, how fast can you sell, how fast can you get out, it's remarkable to witness when you talk to Genesis and they own 30%, they're talking about a $5 billion company.

And most people, they just can't believe specially my age, money managers it's out of the box, out of the negative. And they are oblivious, they are absolutely oblivious to what is taking place with millennials who are now bigger and popular in overall just demographic numbers than we are. And they are sort of from your spending patterns, social patterns, investing patterns from you can get very simple, I asked to run your trade your stocks, you can put bleed into your mutual funds, all the stuff, all of your smartphone. Most of my friends don’t have their whole portfolio on their smartphone. Susan, do you have all your portfolio in the smartphone?

Susan McGee

I have the app.

Frank Holmes

Yes, the apps, sorry it's not that many people and you'll just hear it. So it's just different world and however evolve was most important as I'm excited because rather than it gets delayed and disappointment and spend $10s of $1,000s and $1,000 trying to get legal documents to try to get a product note there. We are now participating this huge in gold sector, and the stock trades are so liquid. Do you know if the stock is traded at 700 million of the stock? I mean in that past month the average price has been 450 and trading 6 million shares of day, I mean it's very, very liquid. Institutions like Fidelity have come in and have done private placements and bought shares, that was at filings you can see that they were participants in the $1.50 funding. So there is something that's extremely important to recognize, this is first mover and where it goes, I would know. But I'm really happy and I think that I've seen it before like I mentioned on several meeting, 3 million, 30 million, 3 billion now it's over a 10 billion.

Holly Schoenfeldt

Thank you, Frank, and Thank you for all the questions that came in today. This concludes the U.S. Global Investors webcast for the first quarter of 2018. This presentation will be available on our website at www.usfunds.com. Thank you all for your participation today.

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