Business Context and Reporting Period
U.S. Global Investors, Inc. is an investment management company serving U.S. and European ETFs and U.S. Global Investors Funds, and investing corporate cash. The filing is a Form 10-Q for the quarter and nine months ended March 31, 2023, representing fiscal third quarter 2023. The request metadata identifies “2022 Q3,” but the filing itself reports fiscal 2023 results.
Total assets under management were approximately $2.3 billion at March 31, 2023, down 43.9% from $4.1 billion a year earlier and down 21.5% from June 30, 2022. The decline primarily affected ETF assets and advisory-fee revenue.
Key Financial Metrics
| Metric | Three months ended March 31, 2023 | Three months ended March 31, 2022 | Nine months ended March 31, 2023 | Nine months ended March 31, 2022 |
|---|---|---|---|---|
| Operating revenue | $3.624 million | $6.175 million | $11.764 million | $19.270 million |
| Operating income | $730 thousand | $2.517 million | $3.223 million | $8.323 million |
| Operating margin | 20.1% | 40.8% | 27.4% | 43.2% |
| Net income (loss) | $1.640 million | $(846) thousand | $2.616 million | $5.134 million |
| Net margin | 45.3% | (13.7)% | 22.2% | 26.6% |
| Diluted EPS | $0.11 | $(0.06) | $0.18 | $0.34 |
| Net cash from operating activities | Not separately provided | Not separately provided | $2.629 million | $9.148 million |
Revenue consisted primarily of advisory fees. Nine-month advisory fees declined to $11.663 million from $19.124 million, while administrative services fees declined to $101 thousand from $146 thousand.
At March 31, 2023, cash and cash equivalents were $24.947 million, restricted cash was $1.000 million, and current assets were $39.640 million. Current liabilities were $2.778 million, producing working capital of approximately $36.9 million and a current ratio of 14.3 to 1. Total liabilities were $2.825 million, consisting primarily of operating liabilities and financing lease obligations; the company had no borrowings outstanding under its $1.0 million credit facility.
Shareholders’ equity was $52.920 million, compared with $54.164 million at June 30, 2022. Recurring fair-value investments totaled $20.833 million, including $7.649 million of HIVE convertible debentures and $222 thousand of HIVE warrants. The company also held $2.827 million of other investments and $1.000 million of held-to-maturity debt securities.
Material Changes Versus the Prior Comparable Period
- Three-month operating revenue fell 41.3%, and nine-month operating revenue fell 39.0%, mainly because of lower average assets under management and lower ETF base management fees.
- Three-month operating expenses decreased 20.9% to $2.894 million. Nine-month operating expenses decreased 22.0% to $8.541 million, driven by lower compensation, bonuses, fund expenses, consulting fees, and advertising.
- Investment results improved materially in the current quarter: investment income was $1.155 million versus a $3.495 million loss in the prior-year quarter. For the nine-month period, investment loss was $189 thousand versus $1.950 million.
- Quarterly net income improved to $1.640 million from a net loss of $846 thousand, despite lower operating revenue. Nine-month net income declined 49.0% to $2.616 million because the reduction in advisory revenue exceeded expense savings.
- Operating cash flow decreased to $2.629 million from $9.148 million. Ending cash, cash equivalents, and restricted cash were $25.947 million versus $27.765 million at March 31, 2022.
- The company repurchased 320,412 Class A shares for $938 thousand during the nine months, compared with 43,591 shares for $233 thousand in the prior-year period. It paid $1.004 million of dividends versus $901 thousand.
- Accumulated other comprehensive income declined to $1.659 million from $3.624 million, principally due to losses on available-for-sale securities.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management stated that current cash reserves, investments, and available financing should be sufficient to meet foreseeable operating needs. No formal earnings or revenue guidance was provided.
- The $1.0 million credit agreement expired May 31, 2023; management stated that it intends to renew the facility. The facility was unused at March 31, 2023, and was collateralized by $1.0 million of restricted cash.
- The monthly dividend of $0.0075 per share was authorized through June 2023 and subsequently extended through September 2023. Future dividends remain subject to Board discretion.
- Expense limitation agreements for the U.S. Global Sea to Sky Cargo ETF, Near-Term Tax Free Fund, and Global Luxury Goods Fund were extended through April 2024. Fee waivers and expense reimbursements totaled $822 thousand for the nine months, compared with $465 thousand in the prior-year period.
- Investment income is volatile and exposed to equity prices, interest rates, foreign currency movements, and cryptocurrency-related securities. The company’s HIVE holdings use significant Level 3 valuation inputs, including volatility assumptions of approximately 101.5% for warrants and 99.8% for convertible debentures.
- A 25% change in the value of equity securities at fair value was estimated to affect net income by approximately $2.604 million, after tax; a comparable change in embedded derivatives was estimated to affect net income by $17 thousand.
- The company reported that disclosure controls and procedures were not effective as of March 31, 2023 because a material weakness in internal control over financial reporting remained outstanding. The weakness relates to evaluation of third-party valuation specialists, definition of their scope of work, and review of their work products. Management was developing a remediation plan.
- Management stated that no material changes occurred in the risk factors disclosed in the prior Form 10-K/A-2. Principal risks include declining assets under management, market and liquidity risk, cryptocurrency-related volatility, inflation, interest rates, geopolitical developments, regulation, and potential effects of COVID-19 or other disruptions.
- The company believes pending or threatened claims and litigation are not expected to create a material adverse effect beyond recorded accruals, although unfavorable outcomes remain possible.
Most Important Facts for Investors to Verify
- Whether the expired credit facility was renewed after May 31, 2023 and whether its terms or collateral requirements changed.
- Progress and effectiveness of remediation for the material weakness in financial reporting controls.
- Current assets under management, particularly ETF assets, and the resulting effect on advisory-fee revenue.
- Updated fair values and valuation assumptions for HIVE debentures, warrants, and other Level 3 investments.
- Continuation of the $0.0075 monthly dividend and the company’s ongoing share repurchase activity.
- The sustainability of fee waivers and expense reimbursements, which increased as a share of fund activity.
- Whether subsequent market, interest-rate, foreign-currency, or cryptocurrency movements materially affected liquidity, earnings, or comprehensive income after March 31, 2023.