Business Context and Reporting Period
Company: U.S. Global Investors, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2009
Business Overview: The Company operates two primary segments: Investment Management Services (advising mutual funds and offshore clients) and Corporate Investments (investing for its own account). Revenue is heavily dependent on Assets Under Management (AUM), which declined significantly due to global market volatility and the financial crisis.
Key Financial Metrics
| Metric | Nine Months Ended Mar 31, 2009 | Nine Months Ended Mar 31, 2008 | Three Months Ended Mar 31, 2009 | Three Months Ended Mar 31, 2008 |
|---|---|---|---|---|
| Total Revenues | $16,666,298 | $39,079,872 | $4,992,797 | $12,265,408 |
| Net Income (Loss) | $(3,200,500) | $6,996,097 | $327,809 | $2,122,662 |
| EPS (Basic) | $(0.21) | $0.46 | $0.02 | $0.14 |
| Cash and Equivalents | $20,452,005 | $25,135,075 (Jun 30, 2008) | N/A | |
| Net Cash Provided by Operations | $1,674,806 | $11,222,720 | N/A | |
| Total Assets | $35,857,312 | $45,494,619 (Jun 30, 2008) | N/A | |
| Shareholders' Equity | $34,080,044 | $39,233,744 (Jun 30, 2008) | N/A | |
| Assets Under Management (AUM) | $1.933 Billion | $5.314 Billion | N/A |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 57% ($22.4 million) for the nine months ended March 31, 2009, compared to the prior year. This was driven by a $17.5 million drop in investment advisory fees and a $5.9 million drop in investment income.
- Profitability Shift: The Company reported a net loss of $3.2 million for the nine-month period, a reversal from the $7.0 million net income reported in the same period in 2008. The loss was primarily due to a $2.46 million other-than-temporary impairment on available-for-sale securities and unrealized losses on trading securities.
- Expense Reduction: Total expenses decreased 25% ($7.1 million) year-over-year. Significant reductions occurred in subadvisory fees ($4.7 million), employee compensation ($2.2 million), and platform fees ($2.8 million), partially offset by a $2.6 million increase in general and administrative expenses related to fund merger costs.
- AUM Contraction: Assets under management plummeted from $5.314 billion in March 2008 to $1.933 billion in March 2009, reflecting the global financial market downturn.
Guidance, Outlook, and Risks
- Market Volatility: Management highlights that continued global market fluctuations and credit market disruptions will impact AUM levels and, consequently, revenue. The Company expects investment income to remain volatile.
- Fee Waivers: Due to low yields on government securities, the Company has waived fees to maintain positive net yields in certain funds. Management expects these waivers to increase in 2009, which will negatively impact revenues and net income.
- Contract Renewals: Investment advisory contracts with USGIF expire on September 30, 2009. Management anticipates renewal but notes this as a contingency.
- Liquidity: The Company maintains strong liquidity with a current ratio of 15.8 to 1 and $20.5 million in cash. It has an unused $1 million credit facility.
- Impairments: The Company recorded a $2.46 million other-than-temporary impairment on corporate investments during the quarter ended December 31, 2008, which significantly impacted the nine-month results.
Investor Verification Checklist
- Verify the sustainability of the $1.933 billion AUM level given ongoing market volatility.
- Monitor the magnitude of future fee waivers required to maintain fund yields in a low-interest-rate environment.
- Confirm the renewal status of the USGIF advisory contracts expiring September 30, 2009.
- Assess the potential for further other-than-temporary impairments on the remaining $5.9 million investment portfolio.
- Review the impact of the fund merger costs on future general and administrative expenses.