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Rating:After '14 Loss, Holmes Plans to GROW U.S. Global Not Rated 0.0 Email Routing List Email & Route  Print Print
Friday, August 29, 2014

After '14 Loss, Holmes Plans to GROW U.S. Global

Reported by Tommy Fernandez

After another year of losses, Frank Holmes, chief executive of U.S. Global Investors is mounting a counter-attack.

His firm, best known for investing in gold and other natural resources as well as emerging markets, reported a net loss of $970,000, or six-cents per share, on revenues of $11.4 million for the fiscal year ended June 30, 2014. The firm had reported a net loss of $194,000 or one-cent per share, on operating revenues of $17.3 million, for fiscal year 2013.

Meanwhile, for the fourth quarter of fiscal year 2014, the company reported net income of $260,000, or two-cents per share, on operating revenues of $2.9 million.

During a conference call with analysts on the latest earnings results, Holmes outlined a number of strategies in response to the losses. A transcript of the call was made available by SeekingAlpha.

These moves have included, or will include:
1. Exiting from the Money Market Biz
2. Expanding ETF Operations
3. Aggressive Cost-Cutting
4. Judicious Share Repurchases
5. Increasing Stake in Gallileo

More details on these can be found below:

1. Exiting from the Money Market Biz
In December 2013, U.S. Global Investors exited the money market fund business by closing its Treasury money market fund and converting its government money market fund to a higher yielding, ultra-short government bond fund.

Holmes had this to say on the subject:

Rates remain only basis points and thus it was a continuous onslaught of cost to maintain the dollar, its just outrageous what these costs have been for the whole industry.

So with that we said were going to have to exit that business and focus on providing shareholders with an ultra short bond fund as an alternative where there is not a drain in our cash flow to the degree that was taken place with these money funds and we closed, merged and reorganized small funds for more focused product line up and we successfully transitioned client accounts to new transfer agency while retaining service relationships with a key client accounts.

2. Expanding ETF Operations
U.S. Global Investors was recently granted exemptive relief by the Securities and Exchange Commission, allowing the company to begin the process of bringing ETF products to market.

Holmes had this to say at various points during the conference:

Were working in developing innovative but dynamic ETF products to expand our product line and earning valuable exposure by a brand in over 170 countries through publishing of our financial commentary and other content.

So growth in ETF products continue to be a disruptive product line for mutual funds and we do feel that because we see money jumping in and out of emerging markets or resources, our gold funds have outperformed the big GDXJ but that doesnt really matter because it appears that people want to be able to have the ability to trade in and out.

3. Aggressive Cost-Cutting
Holmes said last years operating costs were $14.8 million, which "is a decrease of $2.7 million or 15% and this is related to employee compensation and benefits decreasing $1.5 million or 18% and this is because we have fewer employees and lower performance based bonuses. Platform fees decreased $760,000 or 29% as a result of lower assets held through broker/dealer platform. We also reduced advertising $247,000 or 29% as we decreased sales and marketing cost. General and administrative expenses decreased $110,000 or 2% but also included in G&A are some one-time costs that Frank talked about, related to our strategic fund changes. We had approximately $525,000 that we paid in the second quarter of last year related to legal proxy filing and solicitation cost."

4. Judicious Share Repurchases
Holmes described the program in this way:

We continue with our share repurchase program. Its in motion. The Board has approved to repurchase up to $2.75 million of this outstanding common stock on the open market through calendar year 2014. During the fourth quarter of 2014 the Company repurchased 16,840 Class A shares.

We use an algorithm used to buy back shares in down days and of course with all applicable rules, regulations that restrict amounts of times of purchases and this may be suspended or discontinued at any time but the spirit is to continue this program.

5. Increasing Stake in Galileo

U.S. Global Investors, which already owned 50 percent of Toronto-based Galileo Global Equity Advisors, bought another 15 percent in June to gain a controlling interest in the company.

Holmes had this to say on the subject at various points during the conference call:

The next visual is building for future growth. So we increased our ownership in the Canadian asset management company of Galileo. Michael Waring, the CEO and owner of that company, were very, very happy with the investment in Michael. Hes running the show and he's a tremendous individual, knowing this space especially when it comes to small cap growth in energy and income.

Read more on the subject from the SeekingAlpha transcript. 

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