U.S. GLOBAL INVESTORS, INC. U.S. Global Investors, Inc. (the "Company" or "U.S. Global") has made forward-looking statements concerning the Company's performance, financial condition, and operations in this report. The Company from time to time may also make forward-looking statements in its public filings and press releases. Such forward-looking statements are subject to various known and unknown risks and uncertainties and do not guarantee future performance. Actual results could differ materially from those anticipated in such forward-looking statements due to a number of factors, some of which are beyond the Company's control, including: (i) the volatile and competitive nature of the investment management industry, (ii) changes in domestic and foreign economic conditions, including significant economic disruptions from COVID-19 and the actions taken in connection therewith, (iii) the effect of government regulation on the Company's business, and (iv) market, credit, and liquidity risks associated with the Company's investment management activities. Due to such risks, uncertainties, and other factors, the Company cautions each person receiving such forward-looking information not to place undue reliance on such statements. All such forward-looking statements are current only as of the date on which such statements were made.
FACTORS AFFECTING OUR BUSINESS
Since the beginning of 2020, the rapid spread of the global COVID-19 outbreak and actions taken in response have had a significant detrimental effect on the global and domestic economies and financial markets. Market declines affect the Company's assets under management, and thus its revenues and also the valuation of the Company's corporate investments. It is early to determine the long-term impact of current circumstances on the Company's business. Should this emerging macro-economic risk continue for an extended period, there could be an adverse material financial impact to the Company's business and investments, including a material reduction in its results of operations.
COVID-19-related circumstances (e.g., remote work arrangements) have not adversely affected the Company's ability to maintain operations, including financial reporting systems, internal controls over financial reporting, and disclosure controls and procedures.
BUSINESS SEGMENTS The Company, with principal operations located inSan Antonio, Texas , manages two business segments: (1) the Company offers a broad range of investment management products and services to meet the needs of individual and institutional investors, and (2) the Company invests for its own account in an effort to add growth and value to its cash position.
The following is a brief discussion of the Company's business segments.
Investment Management Services
The Company generates operating revenues from managing and servicing U.S. Global
Investors Funds ("USGIF" or the "Funds"). These revenues are largely dependent
on the total value and composition of assets under its management. Fluctuations
in the markets and investor sentiment directly impact the asset levels of the
Funds, thereby affecting income and results of operations. Detailed information
regarding the Funds managed by the Company within USGIF can be found on the
Company's website, www.usfunds.com, including the prospectus and performance
information for each Fund. The mutual fund shareholders in USGIF are not
required to give advance notice prior to redemption of shares in the Funds.
The Company provides advisory services for two U.S. -based exchange-traded fund
("ETF") clients and receives monthly advisory fees based on the net asset values
of the funds. Information on the U.S. -based ETFs can be found at
www.usglobaletfs.com, including the prospectus, performance and holdings. The
Company also serves as investment advisor to one European-based ETF and receives
a monthly advisory fee based on the net asset value of the fund. The
European-based ETF is not available to U.S. investors. The ETFs' authorized
participants are not required to give advance notice prior to redemption of
shares in the ETFs, and the ETFs do not charge a redemption fee.
At December 31, 2021 , total assets under management, including USGIF and ETF
clients, were approximately $3.8 billion versus $3.5 billion at December 31,
2020 , an increase of $255.8 million , or 7.2 percent. During the six months ended
December 31, 2021 , average assets under management, including USGIF and ETF
clients, were $4.0 billion versus $2.4 billion during the six months ended
December 31, 2020 . At June 30, 2021 , the Company's prior fiscal year end, total
assets under management, including USGIF and ETF clients, were approximately
$4.2 billion , and has decreased $439.1 million , or 10.4 percent, during the six
months ended December 31, 2021 .
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The increase in assets under management as ofDecember 31, 2021 , compared toDecember 31, 2020 , is primarily due to inflows into ETF clients, primarily theU.S. Global Jets ETF ("Jets ETF"). The Jets ETF invests in airline-related stocks, including global airline carriers, airport operators and aircraft manufacturers.
The following tables summarize the changes in assets under management for USGIF
for the three and six months ended
Changes in Assets Under Management
Six Months Ended December 31,
2021 2020
(dollars in
thousands) Equity Fixed Income Total Equity Fixed Income Total
Beginning Balance $ 433,380 $ 75,842 $ 509,222 $ 343,214 $ 82,683 $ 425,897
Market appreciation
(depreciation) (25,996 ) (194 ) (26,190 ) 90,392 355 90,747
Dividends and
distributions (61,308 ) (169 ) (61,477 ) (16,243 ) (219 ) (16,462 )
Net shareholder
purchases
(redemptions) 42,758 (2,087 ) 40,671 10,431 (795 ) 9,636
Ending Balance $ 388,834 $ 73,392 $ 462,226 $ 427,794 $ 82,024 $ 509,818
Average investment
management fee 0.95 % 0.00 % 0.80 % 0.90 % 0.01 % 0.74 %
Average net assets $ 396,174 $ 74,158 $ 470,332 $ 395,866 $ 84,848 $ 480,714
Changes in Assets Under Management
Three Months Ended December 31,
2021 2020
(dollars in
thousands) Equity Fixed Income Total Equity Fixed Income Total
Beginning Balance $ 370,026 $ 75,040 $ 445,066 $ 389,485 $ 89,373 $ 478,858
Market appreciation
(depreciation) 28,590 (94 ) 28,496 36,724 259 36,983
Dividends and
distributions (61,309 ) (93 ) (61,402 ) (16,242 ) (115 ) (16,357 )
Net shareholder
purchases
(redemptions) 51,527 (1,461 ) 50,066 17,827 (7,493 ) 10,334
Ending Balance $ 388,834 $ 73,392 $ 462,226 $ 427,794 $ 82,024 $ 509,818
Average investment
management fee 0.94 % 0.00 % 0.79 % 0.91 % 0.01 % 0.75 %
Average net assets
As shown above, USGIF period-end assets under management were lower atDecember 31, 2021 , compared toDecember 31, 2020 . Average net assets for the three and six months in the current fiscal year were lower than the same periods in the previous fiscal year. The equity funds and fixed income funds had net market depreciation for the six months endedDecember 31, 2021 , and net market appreciation for the six months endedDecember 31, 2020 . The equity funds had net market appreciation for the three months endedDecember 31, 2021 , and 2020. The fixed income funds had net market depreciation for the three months endedDecember 31, 2021 , and net market appreciation for the three months endedDecember 31, 2020 . There were net shareholder purchases for the equity funds, and net shareholder redemptions for the fixed income funds for the six months endedDecember 31, 2021 , and 2020. The equity funds had net shareholder purchases, while the fixed income funds had net shareholder redemptions, for the three months endedDecember 31, 2021 , and 2020. The average annualized investment management fee rate (total advisory fees, excluding performance fees, as a percentage of average assets under management) was 80 basis points for the six months endedDecember 31, 2021 , and 74 basis points for the same period in the prior year. The average investment management fee for the equity funds was 95 basis points for the six months endedDecember 31, 2021 , and 90 basis points for the same period in the prior year. The Company has agreed to contractually or voluntarily limit the expenses of the Funds. Therefore, the Company waived or reduced its fees and/or agreed to pay expenses of the Funds. Due to fee waivers, the average investment management fee for the fixed income funds was minimal for both periods. Page 22 --------------------------------------------------------------------------------
Table of Contents Investment Activities Management believes it can more effectively manage the Company's cash position by broadening the types of investments used in cash management and continues to believe that such activities are in the best interest of the Company. The Company's investment activities are reviewed and monitored by Company compliance personnel, and various reports are provided to certain investment advisory clients. Written procedures are in place to manage compliance with the code of ethics and other policies affecting the Company's investment practices. This source of revenue does not remain consistent and is dependent on market fluctuations, the Company's ability to participate in investment opportunities, and timing of transactions. As ofDecember 31, 2021 , the Company held investments carried at fair value of$30.5 million and a cost basis of$22.2 million . The fair value of these investments is approximately 47.4 percent of the Company's total assets atDecember 31, 2021 . In addition, the Company held other investments of approximately$3.6 million , held-to-maturity debt investments of$1.0 million and investments of$489,000 accounted for under the equity method of accounting. Investments recorded at fair value on a recurring basis were approximately$30.5 million atDecember 31, 2021 , compared to approximately$35.3 million atJune 30, 2021 , the Company's prior fiscal year end, which is a decrease of approximately$4.9 million . See Note 2, Investments, to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q, for further information regarding investment activities.
RESULTS OF OPERATIONS - Three months ended
The Company posted net income of$3.6 million ($0.24 per share) for the three months endedDecember 31, 2021 , compared with net income of$16.7 million ($1.10 per share) for the three months endedDecember 31, 2020 , a decrease in net income of approximately$13.1 million . The change is primarily due to a decrease in realized and unrealized investment gains in the current quarter compared to the same quarter last year, somewhat offset by an increase in operating income compared to the same quarter last year, as discussed further below. Operating Revenues Total consolidated operating revenues for the three months endedDecember 31, 2021 , increased$1.9 million , or 39.3 percent, compared with the three months endedDecember 31, 2020 . This increase was primarily attributable to the following:
• Advisory fees increased by
result of higher average assets under management in the ETFs and an increase
in base management fees received. Advisory fees are comprised of two
components: base management fees and performance fees.
• Base management fees increased
was from ETF unitary management fees, which increased
result of an increase in ETF average assets under management, primarily for
the Jets ETF.
• Performance fees for USGIF received in the current quarter were
compared to
increase of
funds only, is a fulcrum fee that is adjusted upwards or downwards by 0.25
percent when there is a performance difference of 5 percent or more between
a fund's performance and that of its designated benchmark index over the
prior rolling 12 months.
Operating Expenses
Total consolidated operating expenses for the three months ended December 31,
2021 , decreased $1.0 million , or 21.8 percent, compared with the three months
ended December 31, 2020 . The decrease in operating expenses was primarily
attributable to a decrease in employee compensation of $1.5 million , or 46.6
percent, primarily as a result of a decrease in bonuses, somewhat offset by
amortization of employee stock options. Bonuses in same quarter last year
related to realized investment gains and positive company and fund performance.
The decrease is offset by an increase in general and administrative expenses of
$474,000 , or 36.7 percent, compared to prior quarter, primarily due to higher
consulting and professional fees, and higher directors' fees and expenses,
primarily due to amortization of stock options.
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--------------------------------------------------------------------------------Table of Contents Other Income (Loss) Total consolidated other income (loss) for the three months endedDecember 31, 2021 , was$1.6 million , compared to$21.7 million for the three months endedDecember 31, 2020 , a decrease of approximately$20.1 million , or 92.7 percent. This change was primarily due to the following factors:
• Investment income was
2021, compared to investment income of
ended
were unrealized gains of
dividend and interest income of
quarter in the prior year had unrealized gains of
gains on sales of securities of
due to extinguishment of debt related to forgiveness of the Paycheck
Protection Program ("PPP") loan and accrued interest. See further information
on the PPP loan in Note 6, Borrowings, to the Consolidated Financial
Statements of this Quarterly Report on Form 10-Q.
• There was
2021, compared to
31, 2020, an increase of
consulting fees earned in the amount of
There were no consulting fees earned from HIVE for the three months ended
of HIVE and held shares and options at
31, 2018, Mr. Holmes was named Interim Executive Chairman of HIVE.
Provision for Income Taxes
A tax expense of $939,000 was recorded for the three months ended December 31,
2021 , compared to tax expense of $5.1 million for the three months ended
December 31, 2020 . The tax expense in the current quarter was primarily the
result of operating income and gains on investments. The tax expense in the same
quarter in the prior year was primarily the result of realized gains on sales of
securities and an increase in valuation of certain investments, which increased
the related deferred tax liability.
RESULTS OF OPERATIONS - Six months ended
The Company posted net income of$6.0 million ($0.40 per share) for the six months endedDecember 31, 2021 , compared with net income of$18.6 million ($1.23 per share) for the six months endedDecember 31, 2020 , a decrease in net income of approximately$12.6 million . The change is primarily due to a decrease in realized and unrealized investment gains in the current period compared to the same period last year, offset by an increase in operating income compared to the same period last year, as discussed further below. Operating Revenues
Total consolidated operating revenues for the six months ended
• Advisory fees increased by
result of higher average assets under management in the ETFs and an increase
in base management fees received. Advisory fees are comprised of two
components: base management fees and performance fees.
• Base management fees increased
was from ETF unitary management fees, which increased
result of an increase in ETF average assets under management, primarily for
the Jets ETF.
• Performance fees for USGIF received in the current period were
compared to
increase of
equity funds only, is a fulcrum fee that is adjusted upwards or downwards
by 0.25 percent when there is a performance difference of 5 percent or more
between a fund's performance and that of its designated benchmark index
over the prior rolling 12 months.
Operating Expenses
Total consolidated operating expenses for the six months ended December 31,
2021 , increased $335,000 , or 4.8 percent, compared with the six months ended
December 31, 2020 . The increase in operating expenses was primarily attributable
to an increase in general and administrative expenses of $826,000 , or 32.5
percent, primarily due to higher consulting and professional fees, and higher
directors' fees and expenses, primarily due to amortization of stock options.
This is offset by a decrease in employee compensation of $546,000 , or 13.0
percent, primarily as a result of a decrease in bonuses, somewhat offset by
amortization of employee stock options. Bonuses in same period last year related
to realized investment gains and positive company and fund performance.
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--------------------------------------------------------------------------------Table of Contents Other Income (Loss) Total consolidated other income (loss) for the six months endedDecember 31, 2021 , was$1.6 million , compared to$22.7 million for the six months endedDecember 31, 2020 , a decrease of approximately$21.1 million , or 92.8 percent. This change was primarily due to the following factors:
• Investment income was
2021, compared to investment income of
unrealized losses of
and dividend and interest income of
same period in the prior year had unrealized gains of
realized gains on sales of securities of
to extinguishment of debt related to forgiveness of the Paycheck Protection
Program ("PPP") loan and accrued interest. See further information on the PPP
loan in Note 6, Borrowings, to the Consolidated Financial Statements of this
Quarterly Report on Form 10-Q.
• There was
2021, compared to
31, 2020, an increase of
consulting fees earned in the amount of
were no consulting fees earned from HIVE for the six months ended December
31, 2020.
and held shares and options at
Mr. Holmes was named Interim Executive Chairman of HIVE. Provision for Income Taxes A tax expense of$1.5 million was recorded for the six months endedDecember 31, 2021 , compared to tax expense of$5.1 million for the six months endedDecember 31, 2020 . The tax expense in the current period was primarily the result of operating income, offset by a decrease in valuation of certain investments, which decreased the related deferred tax liability. The tax expense in the same period in the prior year was primarily the result of realized gains on sales of securities and an increase in valuation of certain investments, which increased the related deferred tax liability.
LIQUIDITY AND CAPITAL RESOURCES
AtDecember 31, 2021 , the Company had net working capital (current assets minus current liabilities) of approximately$29.9 million , an increase of$8.2 million , or 38.0 percent, sinceJune 30, 2021 , and a current ratio (current assets divided by current liabilities) of 9.7 to 1. With approximately$23.2 million in cash and cash equivalents, an increase of$8.7 million , or 60.6 percent sinceJune 30, 2021 , and$8.2 million in securities carried at fair value on a recurring basis, excluding convertible securities, which together comprise approximately 48.8 percent of total assets, the Company has adequate liquidity to meet its current obligations. The increase in cash, and accordingly, net working capital, was primarily due to net cash provided by operating activities of$5.5 million , proceeds on sales of investments of$2.9 million , and proceeds from principal paydowns of$1.5 million . Consolidated shareholders' equity atDecember 31, 2021 , was$59.0 million , an increase of$4.7 million , or 8.7 percent sinceJune 30, 2021 . The increase was primarily due to net income of$6.0 million for the six months endedDecember 31, 2021 . The Company also has access to a$1 million credit facility, which can be utilized for working capital purposes. The credit agreement requires the Company to maintain certain covenants; the Company has been in compliance with these covenants during the current fiscal year. The credit agreement will expire onMay 31, 2022 , and the Company intends to renew annually. The credit facility is collateralized by approximately$1 million , included in restricted cash on the balance sheet, held in deposit in a money market account at the financial institution that provided the credit facility. As ofDecember 31, 2021 , this credit facility remained unutilized by the Company. Investment advisory contracts pursuant to the Investment Company Act of 1940 and related affiliated contracts in theU.S. , by law, may not exceed one year in length and, therefore, must be renewed at least annually after an initial two-year term. The investment advisory and related contracts between the Company and USGIF have been renewed throughSeptember 2022 . The advisory agreement for theU.S. -based ETFs has been renewed throughSeptember 2022 . The primary cash requirements are for operating activities. The Company also uses cash to purchase investments, pay dividends and repurchase Company stock. The cash outlays for investments and dividend payments are discretionary and management or the Board may discontinue as deemed necessary. The stock repurchase plan is approved throughDecember 31, 2022 , but may be suspended or discontinued at any time. Cash and securities recorded at fair value on a recurring basis, excluding convertible securities, of approximately$31.3 million are available to fund current activities. Page 25 --------------------------------------------------------------------------------
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Management believes current cash reserves, investments, and financing available will be sufficient to meet foreseeable cash needs for operating activities.
The spread of the global COVID-19 outbreak and actions taken in response have affected the global and domestic economies and financial markets. Market declines affect the Company's assets under management, and thus its revenues and also the valuation of the Company's corporate investments. The Company cannot determine the long-term impact of COVID-19 on the Company's business. Should this emerging macro-economic risk continue for an extended period, there could be an adverse material financial impact to the Company's business and investments, including a material reduction in its results of operations. CRITICAL ACCOUNTING ESTIMATES For a discussion of other critical accounting policies that the Company follows, please refer to the notes to the consolidated financial statements included in the Annual Report on Form 10-K for the year endedJune 30, 2021 . Page 26 --------------------------------------------------------------------------------
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