Sprott Inc. (NYSE/TSX: SII) (“Sprott” or the “Company”) today announced its financial results for the three and six months ended June 30, 2021.
Management commentary
“Our business continued to perform well during the second quarter, with assets under management increasing to $18.6 billion as of June 30, 2021. We reported $15.1 million ($0.60 per share) of adjusted base EBITDA during the quarter, a 64% or $5.8 million ($0.22 per share) increase over the same period last year,” said Peter Grosskopf, CEO of Sprott. “The earnings growth we have delivered this year has been driven by a combination of strong net sales in our physical trusts, higher average AUM in our managed equities segment and solid contributions from our brokerage business.”
“Subsequent to the quarter end, on July 19, Sprott Asset Management LP completed its previously announced transaction with Uranium Participation Corp. to create the Sprott Physical Uranium Trust,” added Mr. Grosskopf. “This transaction added $630 million to Sprott’s total AUM and provides the company an important strategic foothold in the clean energy metals space. We have a very constructive view on uranium and believe this new trust presents a compelling opportunity to create value for our shareholders by expanding our offerings into areas that complement our core positioning in precious metals.”
Financial highlights
Key AUM highlights1
- AUM was $18.6 billion as at June 30, 2021, up $1.5 billion (9%) from March 31, 2021 and up $1.2 billion (7%) from December 31, 2020. In the second quarter, we experienced market value appreciation across the majority of our fund products while continuing to generate strong inflows into our physical trusts. This helped offset the market value depreciation we experienced on a year-to-date-basis.
Key revenue highlights
- Management fees were $25.1 million in the quarter, up $9.2 million (58%) from the prior period and $47.5 million on a year-to-date basis, up $16.6 million (54%). Carried interest and performance fees were nil in the quarter and $7.9 million on a year-to-date basis, up $7.9 million from the prior period. Net fees1 were $23.2 million in the quarter, up $8.4 million (56%) from the prior period and $46.9 million on a year-to-date basis, up $18 million (62%) from the prior period mainly due to higher average AUM from strong net inflows in our exchange listed products segment. We also benefited from higher average AUM in our managed equities segment, brokerage segment and carried interest crystallization in the first quarter of the year in our lending segment.
- Commission revenues were $7.4 million in the quarter, up $1.2 million (20%) from the prior period and $19.8 million on a year-to-date basis, up $8.5 million (75%). Net commissions1 were $4.3 million in the quarter, up $0.1 million (2%) from the prior period and $11.5 million on a year-to-date basis, up $3.3 million (41%) due to strong equity origination in our brokerage segment.
- Finance income was $0.9 million in the quarter, up $0.3 million (42%) from the prior period and $2.2 million on a year-to-date basis, up $0.6 million (39%) from the prior period due to higher co-investment income in our lending segment.
- Gains on investments were $2.5 million this quarter, down $5.6 million (69%) from the prior period and losses were $2.2 million on a year-to-date basis, compared to gains of $3.8 million in the prior period. Investment gains in the quarter were mainly due to market value appreciation of co-investments and certain equity holdings that resulted in the partial recovery of unrealized losses experienced in the first quarter.
Key expense highlights
- Compensation was $15.5 million in the quarter, up $4.5 million (41%) from the prior period and $38.1 million on a year-to-date basis, up $17 million (80%). Higher total compensation was primarily due to continued strong commission revenues (which drives our commission expense) and the crystallization of carried interest in our lending funds in the first quarter (which led to carried interest payouts to portfolio managers). Net compensation1 (which excludes the commission and carried interest payouts previously mentioned) was $10.8 million in the quarter, up $2.5 million (31%) from the prior period and $22.6 million on a year-to-date basis, up $6.8 million (43%) primarily due to higher annual incentive compensation (“AIP”) on improved financial performance and higher base salaries on new hires. Our compensation ratio (net compensation / net fees & net commissions) on a year-to-date basis was 39% compared to 43% in the prior period.
- SG&A was $3.5 million in the quarter, up $0.5 million (19%) from the prior period and $6.8 million on a year-to-date basis, up $0.5 million (8%). The increase was mainly due to higher insurance, regulatory and technology costs.
Earnings summary
- Net income was $11.1 million ($0.44 per share) in the quarter, up 6%, or $0.6 million ($0.01 per share) from the prior period and $14.3 million ($0.57 per share) on a year-to-date basis, up 24%, or $2.7 million ($0.10 per share). Adjusted base EBITDA1 was $15.1 million ($0.60 per share) in the quarter, up 64%, or $5.8 million ($0.22 per share) from the prior period and $29.7 million ($1.19 per share) on a year-to-date basis, up 71%, or $12.3 million ($0.48 per share). During the quarter and on a year-to-date basis, we benefited from increased fees due to strong net inflows in our exchange listed products segment and higher average AUM in our managed equities segment. We also benefited from increased commission and management fee revenues in our brokerage segment.
1 See “Key performance indicators (non-IFRS financial measures)” section on page 5 of the MD&A
Subsequent events
- On July 19, 2021, the Company, through its wholly-owned subsidiary Sprott Asset Management LP, closed on the previously announced transaction with Uranium Participation Corp to form the Sprott Physical Uranium Trust. This transaction added $630 million to the Company’s AUM.
- On August 5, 2021, the Sprott Board of Directors announced a quarterly dividend of $0.25 per share.
Supplemental financial information
Please refer to the June 30, 2021 interim financial statements of the Company and the related management discussion and analysis filed earlier this morning for further details into the company’s financial position as at June 30, 2021 and the company’s financial performance for the 3 and 6 months ended June 30, 2021.
Schedule 1 – AUM continuity
| 3 months results | |||||||||||
| (In millions $) | AUM Mar. 31, 2021 |
Net inflows (1) | Market value changes |
Other (2) | AUM Jun. 30, 2021 |
Blended management fee rate (3) |
|||||
| Exchange listed products | |||||||||||
| – Physical trusts | |||||||||||
| – Physical Gold Trust | 4,457 | 128 | 151 | – | 4,736 | 0.35 | % | ||||
| – Physical Gold and Silver Trust | 4,004 | (10 | ) | 189 | – | 4,183 | 0.40 | % | |||
| – Physical Silver Trust | 3,233 | 503 | 202 | – | 3,938 | 0.45 | % | ||||
| – Physical Platinum & Palladium Trust | 153 | 10 | – | – | 163 | 0.50 | % | ||||
| – Exchange Traded Funds | 346 | (2 | ) | 24 | – | 368 | 0.35 | % | |||
| 12,193 | 629 | 566 | – | 13,388 | 0.40 | % | |||||
| Managed equities | |||||||||||
| – Precious metals strategies | 2,180 | 3 | 120 | – | 2,303 | 0.79 | % | ||||
| – Other (4) | 345 | (1 | ) | 18 | – | 362 | 0.92 | % | |||
| 2,525 | 2 | 138 | – | 2,665 | 0.81 | % | |||||
| Lending | 961 | 13 | (10 | ) | (5 | ) | 959 | 1.00 | % | ||
| Other (5) | 1,394 | 49 | 95 | – | 1,538 | 0.79 | % | ||||
| Total (6) | 17,073 | 693 | 789 | (5 | ) | 18,550 | 0.52 | % | |||
| 6 months results | |||||||||||
| (In millions $) | AUM Dec. 31, 2020 |
Net inflows (1) | Market value changes |
Other (2) | AUM Jun. 30, 2021 |
Blended management fee rate (3) |
|||||
| Exchange listed products | |||||||||||
| – Physical trusts | |||||||||||
| – Physical Gold Trust | 4,893 | 192 | (349 | ) | – | 4,736 | 0.35 | % | |||
| – Physical Gold and Silver Trust | 4,423 | (21 | ) | (219 | ) | – | 4,183 | 0.40 | % | ||
| – Physical Silver Trust | 2,408 | 1,652 | (122 | ) | – | 3,938 | 0.45 | % | |||
| – Physical Platinum & Palladium Trust | 127 | 27 | 9 | – | 163 | 0.50 | % | ||||
| – Exchange Traded Funds | 382 | 19 | (33 | ) | – | 368 | 0.35 | % | |||
| 12,233 | 1,869 | (714 | ) | – | 13,388 | 0.40 | % | ||||
| Managed equities | |||||||||||
| – Precious metals strategies | 2,479 | 30 | (206 | ) | – | 2,303 | 0.79 | % | |||
| – Other (4) | 352 | (20 | ) | 30 | – | 362 | 0.92 | % | |||
| 2,831 | 10 | (176 | ) | – | 2,665 | 0.81 | % | ||||
| Lending | 999 | 80 | (12 | ) | (108 | ) | 959 | 1.00 | % | ||
| Other (5) | 1,327 | 156 | 55 | – | 1,538 | 0.79 | % | ||||
| Total (6) | 17,390 | 2,115 | (847 | ) | (108 | ) | 18,550 | 0.52 | % | ||
| (1) | See ‘Net inflows’ in the key performance indicators (non-IFRS financial measures) section of the MD&A |
| (2) | Includes new AUM from fund acquisitions and lost AUM from fund divestitures and capital distributions of our lending LPs. |
| (3) | Management fee rate represents the net amount received by the Company. |
| (4) | Includes institutional managed accounts. |
| (5) | Includes Sprott Korea Corp., private equity strategy in Sprott Asia and high net worth discretionary managed accounts in the U.S. |
| (6) | No performance fees are earned on exchange listed products. Performance fees are earned on all precious metals strategies (other than bullion funds) based on returns above relevant benchmarks. Other managed equities strategies primarily earn performance fees on flow-through products. Lending funds earn carried interest calculated as a pre-determined net profit over a preferred return. |
Schedule 2 – Summary financial information
| (In thousands $) | Q2 2021 |
Q1 2021 |
Q4 2020 |
Q3 2020 |
Q2 2020 |
Q1 2020 |
Q4 2019 |
Q3 2019 |
||||||||
| Summary income statements | ||||||||||||||||
| Management fees | 25,062 | 22,452 | 22,032 | 19,934 | 15,825 | 15,125 | 10,685 | 10,577 | ||||||||
| Carried interest and performance fees | – | 7,937 | 10,075 | – | – | – | 1,811 | – | ||||||||
| less: Carried interest and performance fee payouts | 126 | 4,580 | 5,529 | – | – | – | 86 | – | ||||||||
| less: Trailer fees, sub-advisor fees and other (1) | 1,750 | 2,084 | 1,278 | 1,003 | 1,006 | 1,048 | 1,405 | 618 | ||||||||
| Net fees | 23,186 | 23,725 | 25,300 | 18,931 | 14,819 | 14,077 | 11,005 | 9,959 | ||||||||
| Commissions | 7,377 | 12,463 | 6,761 | 9,386 | 6,133 | 5,179 | 6,599 | 6,056 | ||||||||
| less: Commission expense | 3,036 | 5,289 | 2,093 | 3,313 | 1,887 | 1,236 | 2,454 | 2,331 | ||||||||
| Net Commissions | 4,341 | 7,174 | 4,668 | 6,073 | 4,246 | 3,943 | 4,145 | 3,725 | ||||||||
| Finance income (2) | 932 | 1,248 | 1,629 | 757 | 656 | 914 | 2,481 | 2,561 | ||||||||
| Gain (loss) on investments | 2,502 | (4,652 | ) | (3,089 | ) | 4,408 | 8,142 | (4,352 | ) | (1,252 | ) | 600 | ||||
| Other income | 438 | 303 | 949 | 914 | 285 | 113 | 364 | 91 | ||||||||
| Total net revenues | 31,399 | 27,798 | 29,457 | 31,083 | 28,148 | 14,695 | 16,743 | 16,936 | ||||||||
| Compensation | 15,452 | 22,636 | 20,193 | 16,280 | 10,991 | 10,125 | 10,269 | 9,714 | ||||||||
| less: Carried interest and performance fee payouts | 126 | 4,580 | 5,529 | – | – | – | 86 | – | ||||||||
| less: Commission expense and direct payouts | 4,234 | 6,179 | 2,788 | 3,789 | 2,377 | 1,870 | 2,658 | 2,654 | ||||||||
| less: Severance and new hire accruals | 293 | 44 | 65 | 210 | 358 | 667 | 157 | 168 | ||||||||
| Net compensation | 10,799 | 11,833 | 11,811 | 12,281 | 8,256 | 7,588 | 7,368 | 6,892 | ||||||||
| Severance and new hire accruals | 293 | 44 | 65 | 210 | 358 | 667 | 157 | 168 | ||||||||
| Referral fees | 49 | 253 | 98 | 344 | 161 | – | 355 | 86 | ||||||||
| Selling, general and administrative | 3,492 | 3,351 | 2,320 | 2,465 | 2,944 | 3,370 | 2,830 | 2,958 | ||||||||
| Interest expense | 260 | 350 | 331 | 320 | 350 | 236 | 269 | 297 | ||||||||
| Depreciation and amortization | 1,165 | 1,117 | 1,023 | 992 | 1,049 | 988 | 1,254 | 893 | ||||||||
| Other expenses (credits) | 876 | 4,918 | 4,528 | 4,154 | 2,893 | (1,081 | ) | 2,117 | (167 | ) | ||||||
| Total expenses | 16,934 | 21,866 | 20,176 | 20,766 | 16,011 | 11,768 | 14,350 | 11,127 | ||||||||
| Net income | 11,075 | 3,221 | 6,720 | 8,704 | 10,492 | 1,062 | 1,445 | 4,336 | ||||||||
| Net Income per share | 0.44 | 0.13 | 0.27 | 0.36 | 0.43 | 0.04 | 0.06 | 0.18 | ||||||||
| Adjusted base EBITDA | 15,050 | 14,605 | 14,751 | 12,024 | 9,204 | 8,187 | 7,441 | 7,612 | ||||||||
| Adjusted base EBITDA per share | 0.60 | 0.59 | 0.60 | 0.49 | 0.38 | 0.33 | 0.31 | 0.31 | ||||||||
| Operating margin | 52 | % | 51 | % | 51 | % | 47 | % | 49 | % | 43 | % | 38 | % | 36 | % |
| Summary balance sheet | ||||||||||||||||
| Total assets | 361,121 | 356,986 | 377,348 | 358,300 | 338,931 | 318,318 | 324,943 | 325,442 | ||||||||
| Total liabilities | 64,081 | 67,015 | 86,365 | 81,069 | 70,818 | 65,945 | 53,313 | 51,774 | ||||||||
| Total AUM | 18,550,106 | 17,073,078 | 17,390,389 | 16,259,184 | 13,893,039 | 10,734,831 | 9,252,515 | 8,548,982 | ||||||||
| Average AUM | 18,343,846 | 17,188,205 | 16,719,815 | 16,705,046 | 13,216,415 | 11,007,781 | 8,932,651 | 8,608,001 | ||||||||
| (1) | Other includes placement fees, fund operating costs and direct payouts |
| (2) | Finance income includes: (1) co-investment income from lending LP units; (2) ancillary income earned directly or indirectly from lending activities; and (3) interest income from on-balance sheet loans and brokerage client accounts |
Schedule 3 – EBITDA reconciliation
| 3 months ended | 6 months ended | |||||||
| (in thousands $) | Jun. 30, 2021 | Jun. 30, 2020 | Jun. 30, 2021 | Jun. 30, 2020 | ||||
| Net income for the periods | 11,075 | 10,492 | 14,296 | 11,554 | ||||
| Adjustments: | ||||||||
| Interest expense | 260 | 350 | 610 | 586 | ||||
| Provision for income taxes | 3,390 | 1,645 | 6,101 | 3,510 | ||||
| Depreciation and amortization | 1,165 | 1,049 | 2,282 | 2,037 | ||||
| EBITDA | 15,890 | 13,536 | 23,289 | 17,687 | ||||
| Other adjustments: | ||||||||
| (Gain) loss on investments (1) | (2,502 | ) | (8,142 | ) | 2,150 | (3,790 | ) | |
| Non-cash stock-based compensation | 423 | 559 | 796 | 657 | ||||
| Other expenses (2) | 1,113 | 3,251 | 6,056 | 2,837 | ||||
| Adjusted EBITDA | 14,924 | 9,204 | 32,291 | 17,391 | ||||
| Other adjustments: | ||||||||
| Carried interest and performance fees | – | – | (7,937 | ) | – | |||
| Less: Carried interest and performance fee payouts | 126 | – | 4,706 | – | ||||
| Less: Trailer, sub-advisor and placement fees | – | – | 595 | – | ||||
| Adjusted base EBITDA | 15,050 | 9,204 | 29,655 | 17,391 | ||||
| Operating margin (3) | 52 | % | 49 | % | 51 | % | 46 | % |
| (1) | This adjustment removes the income effects of certain gains or losses on short-term investments, co-investments, and digital gold strategies to ensure the reporting objectives of our EBITDA metric are met. |
| (2) | In addition to the items outlined in Note 5 of the interim financial statements, this reconciliation line also includes $0.3 million severance and new hire accruals for the 3 months ended (3 months ended June 30, 2020 – $0.4 million) and $0.3 million for the 6 months ended (6 months ended June 30, 2020 – $1 million). This reconciliation line excludes income attributable to non-controlling interests of $0.1 million for the 3 and 6 months ended (3 and 6 months ended June 30, 2020 – $nil). |
| (3) | Calculated as adjusted base EBITDA inclusive of depreciation and amortization, and excluding income related to legacy balance sheet loans. This figure is then divided by revenues before gains (losses) on investments, net of direct costs as applicable. |
Source: Sprott
