U S GLOBAL INVESTORS INC quarterly report, Q3 FY2024

U.S. Global Investors, Inc. Form 10-Q Summary

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, while also investing corporate cash. This filing covers the three and nine months ended March 31, 2024, the company’s fiscal third quarter, with comparisons to March 31, 2023.

Total assets under management were approximately $1.7 billion at March 31, 2024, down from approximately $2.3 billion a year earlier and $2.4 billion at June 30, 2023.
The company operates in investment management services and corporate investments.

Financial Performance and Key Metrics

Metric	Three Months Ended March 31, 2024	Three Months Ended March 31, 2023	Nine Months Ended March 31, 2024	Nine Months Ended March 31, 2023
Operating revenue	$2.593 million	$3.624 million	$8.544 million	$11.764 million
Operating income (loss)	$(488) thousand	$730 thousand	$(82) thousand	$3.223 million
Net investment income (loss)	$460 thousand	$1.155 million	$1.363 million	$(189) thousand
Net income (loss)	$(35) thousand	$1.620 million	$1.018 million	$2.520 million
Diluted EPS	$(0.00)	$0.11	$0.07	$0.17
Net cash from operating activities	Not separately provided for the quarter	Not separately provided for the quarter	$853 thousand	$2.629 million

Derived operating margin was approximately (18.8%) for the quarter and (1.0%) for the nine-month period. Derived net margin was approximately (1.4%) and 11.9%, respectively.
Advisory fees were $2.566 million for the quarter and $8.458 million for the nine-month period, down 28.5% and 27.5%, respectively, primarily because of lower ETF assets and base management fees.
Operating expenses increased 6.5% for the quarter and 1.0% for the nine-month period. General and administrative expense increased due in part to a USGIF performance-fee elimination proxy and expenses associated with merging the European ETF into the Travel UCITS ETF.
Quarterly net investment income declined because equity securities produced net realized and unrealized losses of $231 thousand, compared with net gains of $270 thousand in the prior-year quarter.
Nine-month net investment income improved primarily because equity-security losses were $1.1 million versus $2.6 million in the prior-year period. Results included a $5.9 million realized loss when HIVE warrants expired, substantially offset by investment gains and valuation changes.

Financial Position, Cash Flow, Debt, and Liquidity

Cash and cash equivalents were $27.460 million; including $1.0 million of restricted cash, total cash, cash equivalents, and restricted cash were $28.460 million.
Net working capital was approximately $38.6 million, with a current ratio of 17.5 to 1.
Total assets were $52.772 million, compared with $55.673 million at June 30, 2023. Shareholders’ equity was $49.846 million, down from $52.196 million.
The company had no borrowings under its $1.0 million working-capital credit facility. The facility was collateralized by restricted cash, remained covenant-compliant, and expired May 31, 2024; management intended to renew it annually.
Nine-month cash flow included $3.890 million from investing activities, primarily principal paydowns and security sales, offset by $2.684 million used in financing activities, including $1.748 million of share repurchases and $965 thousand of dividends.
Recurring fair-value investments totaled $16.7 million, including $5.2 million of HIVE convertible debentures. The company also held $1.1 million of other investments and $843 thousand of held-to-maturity debt securities, net of credit-loss allowance.

Material Changes Versus the Prior Comparable Period

Quarterly revenue fell $1.031 million, or 28.4%, and nine-month revenue fell $3.220 million, or 27.4%.
The company moved from quarterly net income of $1.620 million to a net loss of $35 thousand, while nine-month net income declined 59.6% to $1.018 million.
Average assets under management declined to $1.9 billion for the nine-month period from $2.6 billion. USGIF assets under management ended at $286.3 million, down from $353.0 million.
The company repurchased 211,282 Class A shares for $577 thousand during the quarter and 605,790 shares for $1.7 million during the nine-month period. The 2024 repurchase authorization is up to $5.0 million.
The company adopted CECL on July 1, 2023, recording a $232 thousand initial allowance on a held-to-maturity debt security and a $183 thousand after-tax reduction to beginning retained earnings. The allowance was $157 thousand at March 31, 2024.
Previously issued March 31, 2023 financial statements were revised for previously unrecorded uncertain-tax liabilities. The revision reduced nine-month 2023 net income by $96 thousand and quarterly net income by $20 thousand.

Outlook, Commentary, Risks, and Unusual Items

No quantitative earnings or revenue guidance was provided. Management stated that current cash, investments, and financing availability should be sufficient for foreseeable operating needs.
The monthly dividend of $0.0075 per share was authorized through June 2024 and remains subject to Board review and business conditions.
For three of four USGIF equity funds, the performance-fee adjustment began phasing out April 1, 2024 and is scheduled to cease April 1, 2025. During the phase-out, performance adjustments can only reduce fees.
Investment results are volatile and depend on market prices, transaction timing, and investment opportunities. HIVE convertible debentures use Level 3 valuation inputs, including 110% volatility and a 7.00% credit spread.
The company has indirect cryptocurrency exposure through securities of issuers connected to the cryptocurrency industry, particularly HIVE. Cryptocurrency and related securities may experience significant or rapid losses.
Other principal risks include declining assets under management, redemptions, interest-rate and foreign-currency movements, economic and geopolitical disruptions, regulatory changes, and competition in investment management.
The company disclosed that its disclosure controls and procedures were not effective as of March 31, 2024 because material weaknesses in internal control over financial reporting identified in the prior Form 10-K remained unresolved.
Management reported no material contingency accruals other than the $549 thousand reserve for uncertain tax positions and stated that no known litigation liability beyond recorded accruals was expected to be material.

Important Facts for Investors to Verify

Whether assets under management and advisory revenue stabilize or continue declining, particularly for the Jets ETF and USGIF equity funds.
The nature, remediation status, and potential effects of the disclosed material weaknesses in internal control over financial reporting.
The renewal and terms of the $1.0 million credit facility after its May 31, 2024 expiration.
The valuation, liquidity, maturity payments, and ongoing market exposure of the $5.2 million HIVE convertible debenture investment.
The continuation of the $0.0075 monthly dividend and the pace of share repurchases relative to earnings and cash generation.
The impact of the USGIF performance-fee phase-out and the planned European ETF merger on future revenue and expenses.