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SII Sprott

Filed: 5 Nov 21, 7:00am

 

Exhibit 99.1

 

 

 

 

 

 

 

 

 2021 Third Quarter Report 

 

 

 

 

 

 

 

 

Contrarian. Innovative. Aligned. 

 

 

 

 

Table of Contents

 

Letter to Shareholders2
  
Management's Discussion and Analysis3
  
Consolidated Financial Statements23
  
Notes to the Consolidated Financial Statements28

 

 

 

 

Dear fellow shareholders,

 

During the third quarter of 2021, Sprott demonstrated the strength of our strategy as we continued to deliver strong financial results, despite the sideways trading prices of precious metals for most of the period. Our adjusted base EBITDA increased by 39% to $16.7 million ($0.67 per share) during the quarter and by 58% to $46.4 million ($1.86 per share) over the first nine months of the year. Assets Under Management (“AUM”) were $19 billion as of September 30, 2021, up $0.5 billion (3%) from the end of the second quarter and up $1.6 billion (9%) from December 31, 2020. Subsequent to the quarter-end, the company surpassed $20 billion in AUM, a new historic high for Sprott.

 

The highlight of the quarter was the successful launch of the Sprott Physical Uranium Trust (“SPUT”) which had $630 million in AUM when it was acquired in July. As of September 30, 2021 SPUT's AUM was $1.3 billion and, subsequent to quarter-end, its assets have grown to $1.6 billion driven by a combination of net inflows and market price appreciation. We also benefited from strong flows to our lending segment, which attracted more than $400 million in institutional capital commitments during the quarter. In the brokerage segment, our US division recently launched a new private placement strategy, while our institutional brokerage business in Canada is making larger financial contributions related to higher levels of mining investment activity.

 

Earlier this year, the Congressional Budget Office (“CBO”) in the US published its long-term budget, which hinges on running major deficits until 2029, while interest rates are held well below the forecast rate of inflation throughout. We believe that these inflation trends will prove not to be transitory and that the CBO blueprint has now become the base case for the Federal Reserve, regardless of their tapering plans. The importance of this to Sprott is that as fixed income becomes less attractive, more investors are seeking non-correlated, inflation-protected alternatives to traditional financial assets.

Adding to our precious metals business, investors are now seeking increased exposure to minerals which are required for de-carbonization efforts. Many of these strategic minerals have suffered from under-investment over the past 20 years, and are now deemed attractive to the large flows of capital seeking returns from green energy. Sprott is at the forefront of adding to our exposure and products capable of channeling investor interest into new strategies in this exciting area.

 

In November, subsequent to the end of the third quarter, we announced that we are further expanding our uranium business with an agreement to acquire exclusive licensing rights to the index tracked by the North Shore Global Uranium ETF (“URNM”), which has the potential to result in a transaction that could add approximately $900 million in AUM. We believe URNM is a perfect complement to SPUT, which has quickly become the world's largest and most in-demand physical uranium investment vehicle.

 

We believe the company is ideally positioned for continued growth through what we expect to be an extended bull market for precious metals and strategic minerals.

 

 

Peter Grosskopf

Chief Executive Officer

 

 

 
2

 

 

 

Management's Discussion and Analysis

 

Three and nine months ended September 30, 2021

 

 
3

 

 

 

Forward looking statements

 

Certain statements in this Management's Discussion & Analysis ("MD&A"), and in particular the "Business Performance Highlights" section and "Outlook" section, contain forward-looking information and forward-looking statements (collectively referred to herein as the "Forward-Looking Statements") within the meaning of applicable Canadian and U.S. securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify Forward-Looking Statements. In particular, but without limiting the forgoing, this MD&A contains Forward-Looking Statements pertaining to: (i) expectations that our exchange listed products, managed equities and brokerage segments will post strong numbers for the rest of the year; (ii) our belief that current inflation trends will prove not to be transitory and that the CBO blueprint has now become the base case for the Federal Reserve, regardless of their tapering; (iii) strategic minerals are now deemed attractive to the large flows of capital seeking returns from green energy; (iv) the potential for Sprott to be at the forefront of adding to our exposure and products capable of channeling investor interest into new strategies; (v) an agreement to acquire exclusive licensing rights to the index tracked by the North Shore Global Uranium ETF (“URNM”); (vi) expectation of the effects of COVID-19; and (vii) the declaration, payment and designation of dividends and confidence that our business will support the dividend level without impacting our ability to fund future growth initiatives.

 

Although the Company believes that the Forward-Looking Statements are reasonable, they are not guarantees of future results, performance or achievements. A number of factors or assumptions have been used to develop the Forward-Looking Statements, including: (i) the impact of increasing competition in each business in which the Company operates will not be material; (ii) quality management will be available; (iii) the effects of regulation and tax laws of governmental agencies will be consistent with the current environment; (iv) the impact of COVID-19; and (v) those assumptions disclosed herein under the heading "Critical Accounting Estimates, Judgments and Changes in Accounting Policies". Actual results, performance or achievements could vary materially from those expressed or implied by the Forward-Looking Statements should assumptions underlying the Forward-Looking Statements prove incorrect or should one or more risks or other factors materialize, including: (i) difficult market conditions; (ii) poor investment performance; (iii) failure to continue to retain and attract quality staff; (iv) employee errors or misconduct resulting in regulatory sanctions or reputational harm; (v) performance fee fluctuations; (vi) a business segment or another counterparty failing to pay its financial obligation; (vii) failure of the Company to meet its demand for cash or fund obligations as they come due; (viii) changes in the investment management industry; (ix) failure to implement effective information security policies, procedures and capabilities; (x) lack of investment opportunities; (xi) risks related to regulatory compliance; (xii) failure to manage risks appropriately; (xiii) failure to deal appropriately with conflicts of interest; (xiv) competitive pressures; (xv) corporate growth which may be difficult to sustain and may place significant demands on existing administrative, operational and financial resources; (xvi) failure to comply with privacy laws; (xvii) failure to successfully implement succession planning; (xviii) foreign exchange risk relating to the relative value of the U.S. dollar; (xix) litigation risk; (xx) failure to develop effective business resiliency plans; (xxi) failure to obtain or maintain sufficient insurance coverage on favourable economic terms; (xxii) historical financial information being not necessarily indicative of future performance; (xxiii) the market price of common shares of the Company may fluctuate widely and rapidly; (xxiv) risks relating to the Company’s investment products; (xxv) risks relating to the Company's proprietary investments; (xxvi) risks relating to the Company's lending business; (xxvii) risks relating to the Company’s brokerage business; (xxviii) the potential risk that the transaction and the related fund reorganization will not be approved by the Board of Trustees of Exchange Traded Concepts Trust, by the Board of Trustees of Sprott Funds Trust or by the shareholders of URNM; (xxix) failure to, in a timely manner, or at all, obtain the other necessary approvals for the transaction and related fund reorganization; (xxx) failure of the parties to otherwise satisfy the conditions to complete the transaction and related fund reorganization; (xxxi) the effect of the announcement of the transaction and related transaction on URNM generally and other customary risks associated with transactions of this nature; (xxvii) those risks described under the heading "Risk Factors" in the Company’s annual information form dated February 25, 2021; and (xxiii) those risks described under the headings "Managing Financial Risk" and "Managing Non-Financial Risk" in this MD&A. In addition, the payment of dividends is not guaranteed and the amount and timing of any dividends payable by the Company will be at the discretion of the Board of Directors of the Company and will be established on the basis of the Company’s earnings, the satisfaction of solvency tests imposed by applicable corporate law for the declaration and payment of dividends, and other relevant factors. The Forward-Looking Statements speak only as of the date hereof, unless otherwise specifically noted, and the Company does not assume any obligation to publicly update any Forward-Looking Statements, whether as a result of new information, future events or otherwise, except as may be expressly required by applicable securities laws.

 

Management's discussion and analysis

 

This MD&A of financial condition and results of operations, dated November 4, 2021, presents an analysis of the consolidated financial condition of the Company and its subsidiaries as at September 30, 2021, compared with December 31, 2020, and the consolidated results of operations for the three and nine months ended September 30, 2021, compared with the three and nine months ended September 30, 2020. The board of directors approved this MD&A on November 4, 2021. All note references in this MD&A are to the notes to the Company's September 30, 2021 interim condensed consolidated financial statements ("interim financial statements"), unless otherwise noted. The Company was incorporated under the Business Corporations Act (Ontario) on February 13, 2008.

 

Presentation of financial information

 

The interim financial statements, including the required comparative information, have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB"). Financial results, including related historical comparatives contained in this MD&A, unless otherwise specified herein, are based on the interim financial statements. While the Company’s functional currency is the Canadian dollar, its presentation currency is the U.S. dollar. Accordingly, all dollar references in this MD&A are in U.S. dollars, unless otherwise specified. The use of the term "prior period" refers to the three and nine months ended September 30, 2020.

 

 
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Key performance indicators (non-IFRS financial measures)

 

The Company measures the success of its business using a number of key performance indicators that are not measurements in accordance with IFRS and should not be considered as an alternative to net income (loss) or any other measure of performance under IFRS. Non-IFRS financial measures do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. Our key performance indicators are discussed below:

 

Assets under management

 

Assets under management ("AUM") refers to the total net assets managed by the Company through its various investment product offerings, managed accounts and managed companies.

 

Net inflows

 

Net inflows (consisting of net sales, capital calls and fee earning capital commitments) result in changes to AUM and are described individually below:

 

Net sales

 

Fund sales (net of redemptions), including 'at-the-market' transactions and secondary offerings of our physical trusts and new 'creations' of ETF units, are a key performance indicator as new assets being managed will lead to higher management fees and can potentially lead to increased carried interest and performance fee generation (as applicable) given that AUM is also the basis upon which carried interest and performance fees are calculated.

 

Capital calls and commitments

 

Capital calls into our lending LPs are a key source of AUM creation, and ultimately, earnings for the Company. Once capital is called into our lending LPs, it is included within the AUM of the Company as it will now earn a management fee (NOTE: it is possible for some forms of committed capital to earn a commitment fee despite being uncalled, in which case, it will also be included in AUM at that time). Conversely, once loans in our lending LPs are repaid, capital may be returned to investors in the form of a distribution, thereby reducing our AUM ("capital distributions").

 

Net fees

 

Management fees (net of trailer, sub-advisor, placement fees, fund operating costs and other direct payouts) and carried interest and performance fees (net of carried interest and performance fee payouts) are key revenue indicators as they represent the net revenue contribution after directly associated costs that we generate from our AUM.(1)

 

Net commissions

 

Commissions, net of commission expenses, arise primarily from transaction-based service offerings of our brokerage segment and purchases and sales of uranium in our exchange listed products segment.

 

Net compensation

 

Net compensation excludes commissions, other direct payouts, carried interest and performance fee payouts, which are presented net of their related revenues in this MD&A, and severance and new hire accruals which are non-recurring.(1)

 

Total shareholder return

 

Total shareholder return is the financial gain (loss) that results from a change in the Company's share price, plus any dividends paid over the period.

 

Return on capital

 

Return on capital is calculated as adjusted base EBITDA, plus gain (loss) on investments divided by capital stock plus outstanding loan facility.

 

(1) Prior period non-IFRS measures presented throughout this MD&A have been re-presented to align with these definitions

 

 
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EBITDA, adjusted EBITDA, adjusted base EBITDA and operating margin

 

EBITDA in its most basic form is defined as earnings before interest expense, income taxes, depreciation and amortization. EBITDA is a measure commonly used in the investment industry by management, investors and investment analysts in understanding and comparing results by factoring out the impact of different financing methods, capital structures, amortization techniques and income tax rates between companies in the same industry. While other companies, investors or investment analysts may not utilize the same method of calculating EBITDA (or adjustments thereto), the Company believes its adjusted base EBITDA metric, in particular, results in a better comparison of the Company's underlying operations against its peers and a better indicator of recurring results from operations as compared to other non-IFRS financial measures.

 

Neither EBITDA, adjusted EBITDA or adjusted base EBITDA have standardized meaning under IFRS. Consequently, they should not be considered in isolation, nor should they be used in substitute for measures of performance prepared in accordance with IFRS.

 

The following table outlines how our EBITDA, Adjusted EBITDA and Adjusted base EBITDA measures are determined:

 

 3 months ended9 months ended
(in thousands $)Sep. 30, 2021Sep. 30, 2020Sep. 30, 2021Sep. 30, 2020
Net income for the periods8,718  8,704  23,014  20,258  
Adjustments:    
Interest expense312  320  922  906  
Provision for income taxes2,550  1,613  8,651  5,123  
Depreciation and amortization1,134  992  3,416  3,029  
EBITDA12,714  11,629  36,003  29,316  
Other adjustments:    
(Gain) loss on investments (1)(310) (4,408) 1,840  (8,198) 
Non-cash stock-based compensation452  871  1,248  1,528  
Other expenses (credits) (2)3,857  3,932  9,913  6,769  
Adjusted EBITDA16,713  12,024  49,004  29,415  
Other adjustments:    
Carried interest and performance fees—  —  (7,937) —  
less: Carried interest and performance fee payouts—  —  4,706  —  
less: Trailer, sub-advisor and placement fees—  —  595  —  
Adjusted base EBITDA16,713  12,024  46,368  29,415  
Operating margin (3)52 %47 %52 %47 %

 

(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 as described above are met.

 

(2)In addition to the items outlined in Note 5 of the interim financial statements, this reconciliation line also includes $0.2 million severance and new hire accruals for the 3 months ended (3 months ended September 30, 2020 - $0.2 million) and $0.5 million for the 9 months ended (9 months ended September 30, 2020 - $1.2 million). This reconciliation line excludes income attributable to non-controlling interests of $0.2 million for the 3 months ended September 30, 2021 and $0.3 million for the 9 months ended September 30, 2021 (3 and 9 months ended September 30, 2020 - $0.4 million).

 

(3)Calculated as adjusted base EBITDA inclusive of depreciation and amortization. This figure is then divided by revenues before gains (losses) on investments, net of direct costs as applicable.

 

 
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Business overview

 

Our reportable operating segments are as follows:

 

 

Exchange listed products

 

The Company's closed-end physical trusts and exchange traded funds ("ETFs").

 

Managed equities

 

The Company's alternative investment strategies managed in-house and on a sub-advised basis.

 

Lending

 

The Company's lending and streaming activities occur through limited partnership vehicles ("lending LPs").

 

Brokerage

 

The Company's regulated broker-dealer activities (equity origination, corporate advisory, sales and trading).

 

Corporate

 

Provides the Company's operating segments with capital, balance sheet management and other shared services.

 

All other segments

 

Contains all non-reportable segments as per IFRS 8, Operating Segments ("IFRS 8"). See Note 11 of the interim financial statements for further details.

 

For a detailed account of the underlying principal subsidiaries within our reportable business segments, refer to the Company's Annual Information Form and Note 2 of the annual financial statements.

 

 
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Business highlights

 

Product and business line expansion

 

On July 19, the Company closed on the previously announced transaction with Uranium Participation Corporation (“UPC transaction”) to form the Sprott Physical Uranium Trust ("SPUT"). Under the agreement, UPC shareholders received one half of one unit of SPUT. As part of the transaction, the Company has contributed CAD$6.7 million to UPC at closing, paid CAD$5.8 million termination fee to the former manager, and reimbursed CAD$1 million in out-of-pocket expenses to UPC. At the time of closing, this transaction added $630 million to the Company's AUM.

 

Subsequent to the quarter-end, in November, we announced that we are further expanding our uranium franchise with an agreement to acquire exclusive licensing rights to the index tracked by the North Shore Global Uranium ETF (“URNM”), which has the potential to result in a transaction that could add approximately $900 million in AUM. We believe URNM is a perfect complement to SPUT, which has quickly become the largest and most in-demand physical uranium vehicle in the world.

 

Governance

Subsequent to the quarter-end, on October 13, the Company announced the appointment of Barbara Connolly Keady and Catherine Raw to the Company's board of directors. Both Ms. Keady and Ms. Raw bring over 15 years of finance and asset management industry experience and bring strong perspectives and diverse experiences to complement the skill set of the board of directors. Ms. Keady's appointment is effective immediately while Ms. Raw's appointment is effective January 1, 2022.

 

COVID-19 update

 

Our business continuity plan continues to operate effectively throughout the pandemic. Our portfolio managers, brokerage professionals, enterprise shared services teams and key outsource service providers are fully operational.

 

 

Outlook

 

Despite weaker precious metals prices to close out the month of September, our nine months ended performance remained strong. We continue to expect our exchange listed products, managed equities and brokerage segments to post strong numbers for the rest of the year.

 
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Summary financial information

 

(In thousands $)

Q3

2021

Q2

2021

Q1

2021

Q4

2020

Q3

2020

Q2

2020

Q1

2020

Q4

2019

Summary income statements        
Management fees28,612  25,062  22,452  22,032  19,934  15,825  15,125  10,685  
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)2,529  1,750  2,084  1,278  1,003  1,006  1,048  1,405  
Net fees26,083  23,186  23,725  25,300  18,931  14,819  14,077  11,005  
Commissions11,273  7,377  12,463  6,761  9,386  6,133  5,179  6,599  
  less: Commission expense (2)5,471  3,085  5,542  2,191  3,657  2,048  1,236  2,809  
Net commissions5,802  4,292  6,921  4,570  5,729  4,085  3,943  3,790  
Finance income (3)567  932  1,248  1,629  757  656  914  2,481  
Gain (loss) on investments310  2,502  (4,652) (3,089) 4,408  8,142  (4,352) (1,252) 
Other income529  438  303  949  914  285  113  364  
Total net revenues33,291  31,350  27,545  29,359  30,739  27,987  14,695  16,388  
         
Compensation18,001  15,452  22,636  20,193  16,280  10,991  10,125  10,269  
   less: Carried interest and performance fee payouts—  126  4,580  5,529  —  —  —  86  
   less: Commission expense and direct payouts4,981  4,234  6,179  2,788  3,789  2,377  1,870  2,658  
   less: Severance and new hire accruals207  293  44  65  210  358  667  157  
Net compensation12,813  10,799  11,833  11,811  12,281  8,256  7,588  7,368  
Severance and new hire accruals207  293  44  65  210  358  667  157  
Selling, general and administrative3,682  3,492  3,351  2,320  2,465  2,944  3,370  2,830  
Interest expense312  260  350  331  320  350  236  269  
Depreciation and amortization1,134  1,165  1,117  1,023  992  1,049  988  1,254  
Other expenses (credits)3,875  876  4,918  4,528  4,154  2,893  (1,081) 2,117  
Total expenses22,023  16,885  21,613  20,078  20,422  15,850  11,768  13,995  
         
Net income8,718  11,075  3,221  6,720  8,704  10,492  1,062  1,445  
Net Income per share0.35  0.44  0.13  0.27  0.36  0.43  0.04  0.06  
Adjusted base EBITDA16,713  15,050  14,605  14,751  12,024  9,204  8,187  7,441  
Adjusted base EBITDA per share0.67  0.60  0.59  0.60  0.49  0.38  0.33  0.31  
Operating margin52 %52 %51 %51 %47 %49 %43 %38 %
         
Summary balance sheet        
Total assets375,819  361,121  356,986  377,348  358,300  338,931  318,318  324,943  
Total liabilities84,231  64,081  67,015  86,365  81,069  70,818  65,945  53,313  
         
Total AUM19,016,313  18,550,106  17,073,078  17,390,389  16,259,184  13,893,039  10,734,831  9,252,515  
Average AUM19,090,702  18,343,846  17,188,205  16,719,815  16,705,046  13,216,415  11,007,781  8,932,651  

 

(1)  Other includes placement fees, fund operating costs and direct payouts

 

(2)  Certain comparative figures have been reclassified to conform with current year presentation

 

(3)  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 brokerage client accounts

 

 
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Results of operations

 

AUM summary

 

AUM was $19 billion as at September 30, 2021, up $0.5 billion (3%) from June 30, 2021 and up $1.6 billion (9%) from December 31, 2020. On a three and nine months ended basis, we benefited from the UPC transaction adding $630 million to our physical trusts. We also benefited from strong inflows to our physical trusts and lending strategies. These increases were partially offset by market value depreciation across most of our fund products.

 

3 months results       
        
(In millions $)

AUM

Jun. 30, 2021

Net
    inflows (1)

Market

value changes

     Other (2)

AUM

Sep. 30, 2021

 

Blended

management fee rate (3)

        
Exchange listed products       
   - Physical trusts       
       - Physical Gold Trust4,73684(42)4,778 0.35%
       - Physical Gold and Silver Trust4,183(262)3,921 0.40%
       - Physical Silver Trust3,93845(605)3,378 0.45%
       - Physical Uranium Trust4592146301,303 0.30%
       - Physical Platinum & Palladium Trust1635(40)128 0.50%
   - Exchange Traded Funds368(1)(50)317 0.35%
 13,388592(785)63013,825 0.39%
        
Managed equities       
   - Precious metals strategies2,303(26)(260)2,017 0.81%
   - Other (4)36219(31)350 0.94%
 2,665(7)(291)2,367 0.81%
        
Lending959439(3)(12)1,383 0.89%
        
Other (5)1,538100(197)1,441 0.89%
        
Total (6)18,5501,124(1,276)61819,016 0.51%
        
9 months results       
        
(In millions $)

AUM

Dec. 31, 2020

Net
    inflows (1)

Market

value changes

     Other (2)

AUM

Sep. 30, 2021

 

Blended

management fee rate (3)

Exchange listed products       
   - Physical trusts       
      - Physical Gold Trust4,893276(391)4,778 0.35%
      - Physical Gold and Silver Trust4,423(21)(481)3,921 0.40%
      - Physical Silver Trust2,4081,697(727)3,378 0.45%
      - Physical Uranium Trust4592146301,303 0.30%
      - Physical Platinum & Palladium Trust12732(31)128 0.50%
   - Exchange Traded Funds38218(83)317 0.35%
 12,2332,461(1,499)63013,825 0.39%
        
Managed equities       
   - Precious metals strategies2,4794(466)2,017 0.81%
   - Other (4)352(1)(1)350 0.94%
 2,8313(467)2,367 0.81%
        
Lending999519(15)(120)1,383 0.89%
        
Other (5)1,327256(142)1,441 0.89%
        
Total (6)17,3903,239(2,123)51019,016 0.51%

 

(1) See 'Net inflows' in the key performance indicators (non-IFRS financial measures) section of this 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. 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.

 

 
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Key revenue lines

 

Management fees

 

Management fees were $28.6 million in the quarter, up $8.7 million (44%) from the prior period and $76.1 million on a year-to-date basis, up $25.2 million (50%). 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 fees were $26.1 million in the quarter, up $7.2 million (38%) from the prior period and $73 million on a year-to-date basis, up $25.2 million (53%). The revenue increases were primarily due to the UPC transaction and higher average AUM from strong net inflows in our exchange listed products segment. We also benefited from strong inflows in our lending and brokerage segments. Additionally, we experienced carried interest crystallization in the first quarter of the year in our lending segment.

 

Commission revenues

 

Commission revenues were $11.3 million in the quarter, up $1.9 million (20%) from the prior period and $31.1 million on a year-to-date basis, up $10.4 million (50%). Net commissions were $5.8 million in the quarter, up $0.1 million (1%) from the prior period and $17 million on a year-to-date basis, up $3.3 million (24%). Despite relatively flat net commissions on a three months ended basis, net commissions were strong on a year-to-date basis due to a combination of commissions earned on strong mining equity origination in our brokerage segment earlier in the year and commissions earned on the purchase of uranium in our exchange listed products segment this quarter.

 

Finance income

 

Finance income was $0.6 million in the quarter, down $0.2 million (25%) from the prior period and $2.7 million on a year-to-date basis, up $0.4 million (18%). Our quarterly and year-to-date results are primarily driven by income generation in co-investment positions we hold in LPs managed in our lending segment.

 

Key expense lines

 

Compensation

 

Net compensation was $12.8 million in the quarter, up $0.5 million (4%) from the prior period and $35.4 million on a year-to-date basis, up $7.3 million (26%). The increase was primarily due to higher annual incentive compensation ("AIP") on improved financial performance and higher base salaries on new hires. Our compensation ratio (net compensation divided by net fees and net commissions) on a year-to-date basis was 39% compared to 46% in the prior period.

 

Selling, general & administrative ("SG&A")

 

SG&A was $3.7 million in the quarter, up $1.2 million (49%) from the prior period and $10.5 million on a year-to-date basis, up $1.7 million (20%). The increase was mainly due to higher insurance, regulatory and technology costs.

 

Earnings

 

Net income was $8.7 million ($0.35 per share) in the quarter, largely unchanged from the prior period and $23 million ($0.92 per share) on a year-to-date basis, up 14%, or $2.8 million ($0.09 per share).

 

Adjusted base EBITDA was $16.7 million ($0.67 per share) in the quarter, up 39%, or $4.7 million ($0.18 per share) from the prior period and $46.4 million ($1.86 per share) on a year-to-date basis, up 58%, or $17 million ($0.66 per share).

 

On a quarter and year-to-date basis, we benefited from the acquisition of UPC and the subsequent market value appreciation and inflows into those assets. We also benefited from strong inflows into our lending products this quarter, and into our physical silver trust earlier in the year. Finally, we saw very robust mining equity origination activity in the first half of the year, coupled with strong ongoing AUM development in our brokerage segment.

 

 

 
11

 

 

 

Additional revenues and expenses

 

Investment gains were realized in the quarter on the monetization of certain digital gold strategies. This was partially offset by unrealized losses on certain co-investments and equity holdings.

 

Other income was lower due to a decrease in income attributable to non-controlling interests.

 

Amortization of intangibles was largely flat from the prior period. Depreciation of property was higher from the prior period mainly due to increased depreciation expense related to leases.

 

Other expenses (credits) were largely flat during the quarter and higher on a year-to-date basis. The increase on a year-to-date basis was primarily due to increased contingent consideration related to last year's acquisition of Tocqueville Asset Management's gold fund strategies (the "Tocqueville transaction"), increased FX translation losses, non recurring professional fees and transaction costs. During the period, the Company also made a $2.6 million payment to the former owners of Central Fund of Canada Limited to cover legacy transaction costs from the 2018 acquisition.

 

Balance sheet

 

Our balance sheet was largely unchanged on a year-to-date basis. Total assets were $376 million, down $1.5 million from December 31, 2020. Total liabilities were $84 million, down $2.1 million from December 31, 2020. Total shareholder's equity was $292 million, up $0.6 million from December 31, 2020.

 

 

 
12

 

 

 

 

Reportable operating segments

 

Exchange listed products

 

         
 3 months ended 9 months ended 
         
(In thousands $)Sep. 30, 2021 Sep. 30, 2020 Sep. 30, 2021 Sep. 30, 2020 
Summary income statement        
Management fees13,719 11,208 38,956 26,221 
    less: Trailer, sub-advisor and other91 52 244 293 
Net Fees13,628 11,156 38,712 25,928 
Commissions4,505  4,505  
   less: Commission expense2,896  2,896  
Net commissions (1)1,609  1,609  
Other income1 1 2 9 
Total net revenues15,238 11,157 40,323 25,937 
         
Net compensation1,663 1,488 4,880 3,648 
Severance and new hire accruals   73 
Selling, general and administrative806 412 1,998 1,384 
Interest expense118 64 321 262 
Depreciation and amortization250 237 756 698 
Other expenses (credits)2,572 147 2,600 (509)
Total expenses5,409 2,348 10,555 5,556 
         
Income (loss) before income taxes9,829 8,809 29,768 20,381 
Adjusted base EBITDA12,787 9,396 33,496 21,066 
Operating margin82%82%81%79%
         
Total AUM13,825,185 11,512,310 13,825,185 11,512,310 
Average AUM13,952,266 11,919,859 13,136,531 9,290,867 

(1) See 'net commissions' in the key performance indicators (non-IFRS financial measures) section of this MD&A.

 

3 and 9 months ended

 

Income before income taxes was $9.8 million in the quarter, up $1 million (12%) from the prior period and was $29.8 million on a year-to-date basis, up $9.4 million (46%). Adjusted base EBITDA was $12.8 million in the quarter, up $3.4 million (36%) from the prior period and was $33.5 million on a year-to-date basis, up $12.4 million (59%). Our three and nine month results benefited from the UPC transaction and higher average AUM given strong inflows in our physical trust products (particularly our silver and uranium trusts).

 

 
13

 

 

 

Managed equities

 

         
 3 months ended 9 months ended 
         
(In thousands $)Sep. 30, 2021 Sep. 30, 2020 Sep. 30, 2021 Sep. 30, 2020 
Summary income statement        
Management fees5,861 5,941 18,239 14,720 
Carried interest and performance fees  708  
    less: Carried interest and performance fee payouts  526  
    less: Trailer, sub-advisor and other387 348 1,268 1,010 
Net fees5,474 5,593 17,153 13,710 
Gain (loss) on investments(2,317)4,240 (4,247)8,084 
Other income164 202 785 558 
Total net revenues3,321 10,035 13,691 22,352 
         
Net compensation2,482 2,444 7,426 5,848 
Severance and new hire accruals 34 30 130 
Selling, general and administrative613 329 2,059 1,321 
Interest expense118 172 399 486 
Depreciation and amortization56 53 170 154 
Other expenses (credits)2 3,095 4,702 2,320 
Total expenses3,271 6,127 14,786 10,259 
         
Income (loss) before income taxes50 3,908 (1,095)12,093 
Adjusted base EBITDA2,613 3,141 8,476 7,474 
Operating margin48%53%50%51%
         
Total AUM2,367,492 2,758,676 2,367,492 2,758,676 
Average AUM2,533,528 2,874,082 2,655,933 2,620,610 

 

3 months ended

 

Income before income taxes was $0.1 million in the quarter, down $3.9 million from the prior period. Our quarterly results were primarily impacted by unrealized losses on co-investments that were partially offset by lower other expenses. Adjusted base EBITDA was $2.6 million in the quarter, down $0.5 million (17%) from the prior period. Adjusted base EBITDA was impacted by lower management fees on lower average AUM and higher SG&A from increased insurance, marketing and technology costs.

 

9 months ended

 

Loss before income taxes was $1.1 million on a year-to-date basis, down $13.2 million from the prior period. Our year-to-date results were impacted by unrealized losses on co-investments and higher other expenses from increased contingent consideration related to the Tocqueville transaction. In the first quarter, contingent consideration was successfully renegotiated, re-measured and settled as part of the previously announced amendment to the Tocqueville purchase agreement. Adjusted base EBITDA was $8.5 million on a year-to-date basis, up $1 million (13%) from the prior period. Adjusted base EBITDA benefited from increased management fees on higher average AUM.

 

 
14

 

 

 

Lending

 

         
 3 months ended 9 months ended 
         
(In thousands $)Sep. 30, 2021 Sep. 30, 2020 Sep. 30, 2021 Sep. 30, 2020 
Summary income statement        
Management fees5,867 2,221 9,817 7,168 
Carried interest and performance fees  7,229  
    less: Carried interest and performance fee payouts  4,180  
    less: Trailer, sub-advisor and other742 208 1,597 955 
Net Fees5,125 2,013 11,269 6,213 
Finance income (1)526 757 2,674 2,209 
Loss on investments(374) (451) (2,096) (25) 
Other income44 8 221 83 
Total net revenues5,321 2,327 12,068 8,480 
         
Net compensation2,174 1,204 4,847 3,353 
Severance and new hire accruals182 34 461 197 
Selling, general and administrative256 194 748 569 
Interest expense 5 7 11 
Depreciation and amortization  1 52 
Other expenses (credits)(585) 481 (191) (789) 
Total expenses2,027 1,918 5,873 3,393 
         
Income (loss) before income taxes3,294 409 6,195 5,087 
Adjusted base EBITDA3,474 1,522 6,699 4,849 
Operating margin61%60%59%57%
         
Total AUM1,383,072 905,844 1,383,072 905,844 
Average AUM1,104,661 898,030 988,548 857,369 

(1) Co-investment income from lending LP units held as part of our co-investment portfolio.

 

3 and 9 months ended

 

Income before income taxes was $3.3 million in the quarter, up $2.9 million from the prior period and was $6.2 million on a year-to-date basis, up $1.1 million (22%). Adjusted base EBITDA was $3.5 million in the quarter, up $2 million from the prior period and was $6.7 million on a year-to-date basis, up $1.9 million (38%). The increase in the quarter and on a year-to-date basis was primarily due to commitment fees earned on the rebalancing of certain LPs upon inclusion of new institutional investors.

 

 
15

 

 

 

Brokerage

 

     
 3 months ended9 months ended
     
(In thousands $)Sep. 30, 2021Sep. 30, 2020Sep. 30, 2021Sep. 30, 2020
Summary income statement    
Commissions6,605  9,198  25,828  19,823  
    less: Commission expense2,575  3,762  11,173  7,844  
Net commissions4,030  5,436  14,655  11,979  
Management fees2,609  557  7,160  1,282  
    less: Trailer, sub-advisor and other1,248  371  2,936  697  
Net Fees1,361  186  4,224  585  
Finance income16  —  48  118  
Gain (loss) on investments(1,109) 433  (247) 1,585  
Other income11   52  78  
Total net revenues4,309  6,058  18,732  14,345  
     
Net compensation1,902  1,777  6,187  4,174  
Severance and new hire accruals14  13  42  650  
Selling, general and administrative1,228  957  3,273  3,120  
Interest expense10  10  38  33  
Depreciation and amortization170  130  513  388  
Other expenses (credits)163  58  559  166  
Total expenses3,487  2,945  10,612  8,531  
     
Income (loss) before income taxes822  3,113  8,120  5,814  
Adjusted base EBITDA2,341  3,030  9,610  5,530  
Operating margin37 %57 %47 %48 %
     
Total AUM712,166  356,112  712,166  356,112  
Average AUM748,296  326,118  671,931  212,270  

 

3 months ended

 

Income before income taxes was $0.8 million in the quarter, down $2.3 million (74%) from the prior period. Income before income taxes was impacted by relatively weaker mining equity origination activity in our Canadian brokerage relative to this same time last year, as well as market value depreciation of certain equity holdings. This was partially offset by increased management fee generation in our U.S. managed accounts. Adjusted base EBITDA was $2.3 million in the quarter, down $0.7 million (23%) from the prior period. This was primarily a result of the mining equity origination results previously described, offset by improved management fee generation in our U.S. managed accounts.

 

9 months ended

 

Income before income taxes was $8.1 million on a year-to-date basis, up $2.3 million (40%) from the prior period. Adjusted base EBITDA was $9.6 million on a year-to-date basis, up $4.1 million (74%) from the prior period. Our year-to-date results benefited from increased management fee generation in our U.S. managed accounts, and from strong mining equity origination in the first two quarters of the year in our Canadian broker-dealer.

 

 
16

 

 

 

Corporate

 

This segment is primarily a cost centre that provides capital, balance sheet management and shared services to the Company's subsidiaries.

 

     
 3 months ended9 months ended
     
(In thousands $)Sep. 30, 2021Sep. 30, 2020Sep. 30, 2021Sep. 30, 2020
Summary income statement    
Gain (loss) on investments4,008  315  4,625  (558) 
Other income24  25  47  66  
Total revenues4,032  340  4,672  (492) 
     
Net compensation3,977  4,660  10,504  9,049  
Severance and new hire accruals—  —  —  52  
Selling, general and administrative526  264  1,605  1,368  
Interest expense62  69  153  114  
Depreciation and amortization619  562  1,854  1,714  
Other expenses (credits)1,541  47  1,109  947  
Total expenses6,725  5,602  15,225  13,244  
     
Income (loss) before income taxes(2,693) (5,262) (10,553) (13,736) 
Adjusted base EBITDA(4,377) (4,590) (11,754) (9,757) 

 

3 and 9 months ended

 

Investment gains were primarily from our digital gold strategies.

 

Net compensation decreased in the quarter due to timing differences on AIP accruals. On a year-to-date basis, net compensation increased primarily due to higher AIP on improved financial performance. Our corporate compensation ratio (net compensation per above divided by consolidated total net fees and net commissions) on a year-to-date basis was 12% compared to 15% in the prior period.

 

Other expenses (credits) were primarily due to FX translation movements.

 

 
17

 

 

 

Dividends

 

The following dividends were declared by the Company during the nine months ended September 30, 2021:

 

Record datePayment Date

Cash dividend
per share

Total dividend
amount (in
thousands $)
March 8, 2021 - Regular dividend Q4 2020March 23, 2021$0.256,426  
May 17, 2021 - Regular dividend Q1 2021June 1, 2021$0.256,426  
August 16, 2021 - Regular dividend Q2 2021August 31, 2021$0.256,426  
Dividends (1)  19,278  

(1)  Subsequent to quarter end, on November 4, 2021, a regular dividend of $0.25 per common share was declared for the quarter ended September 30, 2021. This dividend is payable on November 30, 2021 to shareholders of record at the close of business on November 15, 2021.

 

Capital stock

 

Including the 0.8 million unvested common shares currently held in the EPSP Trust (December 31, 2020 - 0.8 million), total capital stock issued and outstanding was 25.7 million (December 31, 2020 - 25.6 million).

 

Earnings per share for the current and prior periods have been calculated using the weighted average number of shares outstanding during the respective periods. Basic earnings per share was $0.35 for the quarter and $0.92 on a year-to-date basis compared to $0.36 and $0.83 in the prior periods respectively. Diluted earnings per share was $0.34 in the quarter and $0.89 on a year-to-date basis compared to $0.34 and $0.79 in the prior periods respectively. Diluted earnings per share reflects the dilutive effect of in-the-money stock options, unvested shares held in the EPSP Trust and outstanding restricted stock units.

 

A total of 162,500 stock options are outstanding pursuant to our stock option plan, all of which are exercisable.

 

 
18

 

 

 

Liquidity and capital resources

 

As at September 30, 2021, the Company had $33.6 million (December 31, 2020 - $17 million) outstanding on its credit facility, all of which is due on December 14, 2025. The increase was primarily to fund the cost of the Tocqueville and UPC transactions.

 

The Company has access to a credit facility of $70 million with a major Canadian schedule I chartered bank. Amounts under the facility may be borrowed through prime rate loans or bankers’ acceptances. Amounts may also be borrowed in U.S. dollars through base rate loans. Subsequent to the quarter-end, on November 4, 2021, the Company upsized its credit facility to $120 million for general corporate purposes.

 

As at September 30, 2021, the Company was in compliance with all covenants, terms and conditions under the credit facility. Key terms under the credit facility are noted below:

 

Structure

 

5-year, $70 million revolver with "bullet maturity" December 14, 2025

 

Interest rate

 

Prime rate + 0 bps or;

 

Banker acceptance rate + 170 bps

 

Covenant terms

 

Minimum AUM: 70% of AUM on November 13, 2020

 

Debt to EBITDA less than or equal to 2.5:1

 

EBITDA to interest expense more than or equal to 2.5:1

 

Commitments

 

Besides the Company's long-term lease agreements, there are commitments to make co-investments in lending LPs arising from our lending segment or commitments to make investments in the net investments portfolio of the Company. As at September 30, 2021, the Company had $7.6 million in co-investment commitments from the lending segment (December 31, 2020 - $4.6 million).

 

 
19

 

 

 

  

Critical accounting estimates, judgements and changes in accounting policies

 

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are described below. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments may change due to market changes or circumstances arising beyond the control of the Company. Such changes are reflected in the assumptions and estimates as they occur. The Company’s significant accounting policies are described in Note 2 of the December 31, 2020 audited annual financial statements. Certain of these accounting policies require management to make key assumptions concerning the future and consider other sources of estimation uncertainty at the reporting date. These accounting estimates are considered critical because they require subjective and/or complex judgements that may have a material impact on the value of our assets, liabilities, revenues and expenses.

 

Critical accounting estimates

 

Impairment of goodwill and intangible assets

 

All indefinite life intangible assets and goodwill are assessed for impairment annually, however, finite life intangibles are only tested for impairment to the extent indicators of impairment exist at the time of a quarterly assessment. In the case of goodwill and indefinite life intangibles, this annual test for impairment augments the quarterly impairment indicator assessments. Values associated with goodwill and intangibles involve estimates and assumptions, including those with respect to future cash inflows and outflows, discount rates, AUM, net inflows, and asset lives. These estimates require significant judgment regarding market growth rates, fund flow assumptions, expected margins and costs, which could affect the Company's future results if estimates of future performance and fair value change.

 

Fair value of financial instruments

 

When the fair value of financial assets and financial liabilities recorded in the consolidated balance sheets cannot be derived from active markets, they are determined using valuation techniques and models. Model inputs are taken from observable markets where possible, but where this is not feasible, unobservable inputs may be used. These unobservable inputs include, but are not limited to, projected cash flows, discount rates, comparable recent transactions, volatility of underlying securities in warrant valuations and extraction recovery rates of mining projects. The use of unobservable inputs can involve significant judgment and materially affect the reported fair value of financial instruments.

 

Significant judgements

 

Investments in other entities

 

IFRS 10 Consolidated Financial Statements ("IFRS 10") and IAS 28 Investments in Associates and Joint Ventures ("IAS 28") provide for the use of judgment in determining whether an investee should be included within the consolidated financial statements of the Company and on what basis (subsidiary, joint venture, financial instrument or associate). Significant judgment is applied in evaluating facts and circumstances relevant to the Company and investee, including: (1) the extent of the Company's direct and indirect interests in the investee; (2) the level of compensation to be received from the investee for management and other services provided to it; (3) "kick out rights" available to other investors in the investee; and (4) other indicators of the extent of power that the Company has over the investee.

 

 
20

 

 

  

Managing financial risks

 

Market risk

 

The Company separates market risk into three categories: price risk, interest rate risk and foreign currency risk.

 

Price risk

 

Price risk arises from the possibility that changes in the price of the Company's on and off-balance sheet assets and liabilities will result in changes in carrying value or recoverable amounts. The Company's revenues are also exposed to price risk since management fees, carried interests and performance fees are correlated with AUM, which fluctuates with changes in the market values of the assets in the funds and managed accounts managed by the Company.

 

Interest rate risk

 

Interest rate risk arises from the possibility that changes in interest rates will adversely affect the value of, or cash flows from, financial instrument assets. The Company’s earnings, particularly through its lending segment, are exposed to volatility as a result of sudden changes in interest rates. Management takes into account a number of factors and is committed to several processes to ensure that this risk is appropriately managed.

 

Foreign currency risk

 

The Company enters into transactions that are denominated primarily in U.S. dollar and Canadian dollar. Foreign currency risk arises from foreign exchange rate movements that could negatively impact either the carrying value of financial assets and liabilities or the related cash flows which are denominated in currencies other than the functional currency of the Company and its subsidiaries. The Company may employ certain hedging strategies to mitigate foreign currency risk.

 

Credit risk

 

Credit risk is the risk that a borrower will not honor its commitments and a loss to the Company may result. Credit risk generally arises in the Company's investments portfolio.

 

Investments

 

The Company incurs credit risk when entering into, settling and financing transactions with counterparties. Management takes into account a number of factors and is committed to several processes to ensure that this risk is appropriately managed.

 

Other

 

The majority of accounts receivable relate to management fees, carried interest and performance fees receivable from the funds, managed accounts and managed companies managed by the Company. These receivables are short-term in nature and any credit risk associated with them is managed by dealing with counterparties that the Company believes to be creditworthy and by actively monitoring credit exposure and the financial health of the counterparties.

 

Liquidity risk

 

Liquidity risk is the risk that the Company cannot meet a demand for cash or fund its obligations as they come due. The Company's exposure to liquidity risk is minimal as it maintains sufficient levels of liquid assets to meet its obligations as they come due. Additionally, the Company has access to a $70 million committed line of credit with a major Canadian schedule I chartered bank. As part of its cash management program, the Company primarily invests in short-term debt securities issued by the Government of Canada with maturities of less than three months.

 

 
21

 

 

 

The Company's exposure to liquidity risk as it relates to our co-investments in lending LPs arises from fluctuations in cash flows from making capital calls and receiving capital distributions. The Company manages its loan co-investment liquidity risk through the ongoing monitoring of scheduled capital calls and distributions ("match funding") and through its broader treasury risk management program and enterprise capital budgeting.

 

Financial liabilities, including accounts payable and accrued liabilities and compensation payable, are short-term in nature and are generally due within a year.

 

The Company's management team is responsible for reviewing resources to ensure funds are readily available to meet its financial obligations as they come due, as well as ensuring adequate funds exist to support business strategies and operations growth. The Company manages liquidity risk by monitoring cash balances on a daily basis and through its broader treasury risk management program. To meet any liquidity shortfalls, actions taken by the Company could include: slowing its co-investment activities; adjust or otherwise temporarily suspend AIPs; cut or temporarily suspend its dividend; drawing on the line of credit; liquidating net investments; and/or issuing common shares.

 

Concentration risk

 

A significant portion of the Company's AUM as well as its investments are focused on the natural resource sector, and in particular, precious metals related investments and transactions. In addition, from time-to-time, certain investment may be concentrated to a material degree in a single position or group of positions. Management takes into account a number of factors and is committed to several processes to ensure that this risk is appropriately managed.

 

Disclosure controls and procedures ("DC&P") and internal control over financial reporting ("ICFR")

 

Management is responsible for the design and operational effectiveness of DC&P and ICFR in order to provide reasonable assurance regarding the disclosure of material information relating to the Company. This includes information required to be disclosed in the Company's annual filings, interim filings and other reports filed under securities legislation, as well as the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.

 

Our chief executive officer and chief financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in the applicable U.S. and Canadian securities law), concluded that the Company's DC&P and ICFR were properly designed and were operating effectively as at September 30, 2021. In addition, there were no material changes to ICFR during the quarter, and the implementation of our business continuity plan as a result of COVID-19 has not prevented the normal function of our internal controls.

 

Managing non-financial risks

 

For details around other risks managed by the Company (e.g. confidentiality of information, conflicts of interest, etc.) refer to the Company's annual report as well as the Annual Information Form available on EDGAR at www.edgar.com and SEDAR at www.sedar.com.

 

Additional information relating to the Company, including the Company's Annual Information Form is available on EDGAR at www.sec.gov and SEDAR at www.sedar.com.

 

 
22

 

 

 

Consolidated Financial Statements

 

Three and nine months ended September 30, 2021

 

 
23

 

 

 

Interim condensed consolidated balance sheets (unaudited)

 

As at  Sep. 30  Dec. 31 
(In thousands of US dollars)  2021  2020 
Assets          
Current          
Cash and cash equivalents    60,177   44,106 
Fees receivable    13,345   21,581 
Short-term investments  (Notes 3 & 9) 6,645   9,475 
Other assets  (Note 5) 6,655   9,196 
Income taxes recoverable    584   948 
Total current assets    87,406   85,306 
Co-investments  (Note 4 & 9) 68,246   82,467 
Other assets  (Note 5 & 9) 15,047   16,118 
Property and equipment, net    14,257   16,611 
Intangible assets  (Note 6) 169,449   155,968 
Goodwill  (Note 6) 19,149   19,149 
Deferred income taxes  (Note 8) 2,265   1,729 
     288,413   292,042 
Total assets    375,819   377,348 
Liabilities and shareholders' equity          
Current          
Accounts payable and accrued liabilities    17,379   29,702 
Compensation payable    15,866   15,192 
Income taxes payable    6,102   2,347 
Total current liabilities    39,347   47,241 
Other accrued liabilities    6,343   17,379 
Loan facility  (Note 12) 33,649   16,994 
Deferred income taxes  (Note 8) 4,892   4,751 
Total liabilities    84,231   86,365 
Shareholders' equity          
Capital stock  (Note 7) 419,011   417,758 
Contributed surplus  (Note 7) 38,820   43,309 
Deficit    (100,748)  (104,484)
Accumulated other comprehensive loss    (65,495)  (65,600)
Total shareholders' equity    291,588   290,983 
Total liabilities and shareholders' equity    375,819   377,348 
Commitments and provisions  (Note 13)       
           
The accompanying notes form part of the consolidated financial statements          

  

“Ron Dewhurst”“Sharon Ranson, FCPA, FCA” 
DirectorDirector 

 

 
24

 

 

 

Interim condensed consolidated statements of operations and comprehensive income (unaudited)

 

  For the three months
ended
For the nine months
ended
      
  Sep. 30Sep. 30Sep. 30Sep. 30
(In thousands of US dollars, except for per share amounts)2021202020212020
      
Revenues     
Management fees 28,612  19,934  76,126  50,884  
Carried interest and performance fees —  —  7,937  —  
Commissions 11,273  9,386  31,113  20,698  
Finance income 567  757  2,747  2,327  
Gain (loss) on investments(Note 3, 4 and 5)310  4,408  (1,840) 8,198  
Other income(Note 5)529  914  1,270  1,312  
Total revenue 41,291  35,399  117,353  83,419  
      
Expenses     
Compensation(Note 7)18,001  16,280  56,089  37,396  
Trailer, sub-advisor and placement fees 3,019  871  5,067  1,962  
Selling, general and administrative 3,682  2,465  10,525  8,779  
Interest expense 312  320  922  906  
Amortization of intangibles(Note 6)231  219  699  645  
Depreciation of property and equipment 903  773  2,717  2,384  
Other expenses (credits)(Note 5)3,875  4,154  9,669  5,966  
Total expenses 30,023  25,082  85,688  58,038  
Income before income taxes for the period11,268  10,317  31,665  25,381  
Provision for income taxes(Note 8)2,550  1,613  8,651  5,123  
Net income for the period 8,718  8,704  23,014  20,258  
Net income per share:     
Basic(Note 7)0.35  0.36  0.92  0.83  
Diluted(Note 7)0.34  0.34  0.89  0.79  
      
Net income for the period 8,718  8,704  23,014  20,258  
Other comprehensive income (loss)     
Items that may be reclassified subsequently to profit or loss    
Foreign currency translation gain (loss) (taxes of $Nil)(7,288) 5,129  105  (6,066) 
Total other comprehensive income (loss)(7,288) 5,129  105  (6,066) 
Comprehensive income 1,430  13,833  23,119  14,192  
      
The accompanying notes form part of the consolidated financial statements   

 

 
25

 

 

 

Interim condensed consolidated statements of changes in shareholders' equity (unaudited)

 

         
(In thousands of US dollars, other than number of shares) 

Number of
shares

outstanding
(1)

Capital
stock
Contributed
surplus
DeficitAccumulated
other
comprehensive
income (loss)

Total

equity

        
At Dec. 31, 2020 24,789,365  417,758  43,309  (104,484) (65,600) 290,983  
Shares acquired for equity incentive plan(Note 7)(85,737) (3,369) —  —  —  (3,369) 
Issuance of share capital to settle contingent consideration(Note 7)93,023  3,000  (4,879) —  —  (1,879) 
Shares released on vesting of equity incentive plan(Note 7)14,322  369  (369) —  —  —  
Foreign currency translation gain (loss) —  —  —  —  105  105  
Stock-based compensation(Note 7)—  —  1,906  —  —  1,906  
Issuance of share capital on conversion of RSUs(Note 7)55,833  1,147  (1,147) —  —  —  
Dividends declared(Note 10)2,645  106  —  (19,278) —  (19,172) 
Net income —  —  —  23,014  —  23,014  
Balance, Sep. 30, 2021 24,869,451  419,011  38,820  (100,748) (65,495) 291,588  
        
At Dec. 31, 2019 24,417,639  407,900  43,160  (108,222) (71,208) 271,630  
Shares acquired for equity incentive plan(Note 7)(128,304) (2,514) —  —  —  (2,514) 
Issuance of share capital on purchase of management contracts 104,720  2,500  —  —  —  2,500  
Share-based contingent consideration related to the Tocqueville transaction —  —  4,879  —  —  4,879  
Shares released on vesting of equity incentive plan(Note 7)10,084  288  (288) —  —  —  
Issuance of share capital on exercise of stock options(Note 7)150,000  5,159  (2,655) —  —  2,504  
Shares acquired and canceled under normal course issuer bid(Note 7)(112,343) (2,024) —  —  —  (2,024) 
Foreign currency translation gain (loss)(Note 7)—  —  —  —  (6,066) (6,066) 
Stock-based compensation(Note 7)—  —  2,833  —  —  2,833  
Issuance of share capital on conversion of RSUs(Note 7)53,810  1,059  (1,059) —  —  —  
Dividends declared 4,170  93  —  (16,862) —  (16,769) 
Net income —  —  —  20,258  —  20,258  
Balance, Sep. 30, 2020 24,499,776  412,461  46,870  (104,826) (77,274) 277,231  

 

 

The accompanying notes form part of the consolidated financial statements   

 

(1) Amounts reflect retrospective application of the May 28, 2020 share consolidation (see Note 7).

 

 
26

 

 

 

Interim condensed consolidated statements of cash flows (unaudited)

 

  For the nine months ended
    
  Sep. 30Sep. 30
(In thousands of US dollars) 20212020
    
Operating activities   
Net income for the period 23,014  20,258  
Add (deduct) non-cash items:   
(Gain) Loss on investments 1,840  (8,198) 
Stock-based compensation 1,906  2,833  
Depreciation and amortization of property, equipment and intangible assets 3,416  3,029  
Deferred income tax expense (409) 2,436  
Current income tax expense 9,060  2,687  
Other items (783) (936) 
Income taxes paid (4,817) —  
Changes in:   
Fees receivable 8,236  (1,282) 
Other assets 2,134  3,093  
Accounts payable, accrued liabilities and compensation payable 2,929  4,004  
Cash provided by (used in) operating activities 46,526  27,924  
    
Investing activities   
Purchase of investments (13,712) (15,535) 
Sale of investments 31,196  15,536  
Purchase of property and equipment (344) (374) 
Management contract consideration (40,559) (12,500) 
Cash provided by (used in) investing activities (23,419) (12,873) 
    
Financing activities   
Acquisition of common shares for equity incentive plan (3,369) (2,514) 
Acquisition of common shares under normal course issuer bid —  (2,024) 
Cash received on exercise of stock options —  2,504  
Repayment of lease liabilities (1,870) (1,401) 
Contributions from non-controlling interests 798  2,395  
Net advances from loan facility 16,600  2,294  
Dividends paid (19,172) (16,769) 
Cash provided by (used in) financing activities (7,013) (15,515) 
Effect of foreign exchange on cash balances (23) (4,395) 
Net increase (decrease) in cash and cash equivalents during the period 16,071  (4,859) 
Cash and cash equivalents, beginning of the period 44,106  54,748  
Cash and cash equivalents, end of the period 60,177  49,889  
Cash and cash equivalents:   
Cash 54,487  44,467  
Short-term deposits 5,690  5,422  
  60,177  49,889  
    
The accompanying notes form part of the consolidated financial statements   

 

 
27

 

 

 

SPROTT INC.

Notes to the interim condensed consolidated financial statements (unaudited)

For the three and nine months ended September 30, 2021 and 2020

 

1Corporate information

 

Sprott Inc. (the "Company") was incorporated under the Business Corporations Act (Ontario) on February 13, 2008. Its registered office is at Royal Bank Plaza, South Tower, 200 Bay Street, Suite 2600, Toronto, Ontario M5J 2J1.

 

2Summary of significant accounting policies

 

Statement of compliance

 

These interim condensed consolidated financial statements ("interim financial statements") have been prepared in accordance with International Financial Reporting Standards ("IFRS") in effect as at September 30, 2021, specifically, IAS 34 Interim Financial Reporting.

 

Compliance with IFRS requires the Company to exercise judgement and make estimates and assumptions that effect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may vary. Except as otherwise noted, significant accounting judgements and estimates are described in Note 2 of the December 31, 2020 annual audited consolidated financial statements and have been applied consistently to the interim financial statements as at and for the three and nine months ended September 30, 2021.

 

The interim financial statements have been authorized for issue by a resolution of the board of directors of the Company on November 4, 2021 and include all subsequent events up to that date.

 

Basis of presentation

 

These interim financial statements have been prepared on a going concern basis and on a historical cost basis, except for financial assets and financial liabilities classified as fair value through profit or loss ("FVTPL") or fair value through other comprehensive income ("FVOCI"), both of which have been measured at fair value. The interim financial statements are presented in U.S. dollars and all values are rounded to the nearest thousand ($000), except when indicated otherwise.

 

Principles of consolidation

 

These interim financial statements of the Company are prepared on a consolidated basis so as to include the accounts of all limited partnerships and corporations the Company is deemed to control under IFRS. Controlled limited partnerships and corporations ("subsidiaries") are consolidated from the date the Company obtains control. All intercompany balances with subsidiaries are eliminated upon consolidation. Subsidiary financial statements are prepared over the same reporting period as the Company and are based on accounting policies consistent with that of the Company.

 

The Company records third-party interests in the funds which do not qualify to be equity due to redeemable or limited life features, as non-controlling interest liabilities. Such interests are initially recognized at fair value, with any changes recorded in Other expenses (credits).

 

Control exists if the Company has power over the entity, exposure or rights to variable returns from its involvement with the entity and the ability to use its power over the entity to affect the amount of returns the Company receives. In many, but not all instances, control will exist when the Company owns more than one half of the voting rights of a corporation, or is the sole limited and general partner of a limited partnership.

 

 
28

 

 

 

SPROTT INC.

Notes to the interim condensed consolidated financial statements (unaudited)

For the three and nine months ended September 30, 2021 and 2020

 

The Company currently controls the following principal subsidiaries:

 

Sprott Asset Management LP ("SAM");

 

Sprott Capital Partners LP ("SCP");

 

Sprott Asia LP ("Sprott Asia") and Sprott Korea Corporation ("Sprott Korea");

 

Sprott U.S. Holdings Inc. ("SUSHI"), parent of: (1) SGRIL Holdings Inc. ("SGRIL Holdings"); (2) Sprott Global Resource Investments Ltd. ("SGRIL"); (3) Sprott Asset Management USA Inc. ("SAM US"); and (4) Resource Capital Investment Corporation ("RCIC"). Collectively, the interests of SUSHI are referred to as "Global" in these financial statements;

 

Sprott Resource Streaming and Royalty Corporation and Sprott Private Resource Streaming and Royalty (Management) Corp ("SRSR");

 

Sprott Resource Lending Corp. ("SRLC"); and

 

Sprott Inc. 2011 Employee Profit Sharing Plan Trust (the "Trust").

 

Other accounting policies

 

All other accounting policies, judgments, and estimates described in the December 31, 2020 annual audited consolidated financial statements have been applied consistently to these interim financial statements unless otherwise noted.

 

 
29

 

 

 

SPROTT INC.

Notes to the interim condensed consolidated financial statements (unaudited)

For the three and nine months ended September 30, 2021 and 2020

 

3Short-term investments

 

Primarily consist of equity investments in public and private entities we receive as consideration during lending, managed equities and brokerage segment activities (in thousands $):

 

 Classification and
measurement criteria
Sep. 30, 2021Dec. 31, 2020
    
Public equities and share purchase warrantsFVTPL4,955  6,751  
Fixed income securitiesFVTPL—  731  
Private holdingsFVTPL1,690  1,993  
Total short-term investments 6,645  9,475  

 

Gains and losses on financial assets and liabilities classified at FVTPL are included in the gain (loss) on investments in the consolidated statements of operations and comprehensive income.

 

4Co-investments

 

Consists of the following (in thousands $):

 

 Classification and
measurement criteria
Sep. 30, 2021Dec. 31, 2020
    
Co-investments in fundsFVTPL68,246  82,467  
Total co-investments 68,246  82,467  

 

Gains and losses on co-investments in funds are included in the gain (loss) on investments in the consolidated statements of operations and comprehensive income.

 

 
30

 

 

 

SPROTT INC.

Notes to the interim condensed consolidated financial statements (unaudited)

For the three and nine months ended September 30, 2021 and 2020

 

5Other assets, income, expenses and non-controlling interest

 

Other assets

 

Consist of the following (in thousands $):

 

   
 Sep. 30, 2021Dec. 31, 2020
   
Digital gold strategies(1)9,624  11,518  
Fund recoveries and investment receivables3,898  6,043  
Assets attributable to non-controlling interests3,688  3,518  
Prepaid expenses2,355  2,316  
Other(2)2,137  1,919  
Total other assets21,702  25,314  

 

(1)Digital gold strategies are financial instruments classified at FVTPL. Gains and losses are included in gain (loss) on investments in the consolidated statements of operations and comprehensive income.

 

(2)Includes miscellaneous third-party receivables.

 

Other income

 

Consist of the following (in thousands $):

 

 For the three months endedFor the nine months ended
 Sep. 30, 2021Sep. 30, 2020Sep. 30, 2021Sep. 30, 2020
     
Investment income (1)304  482  970  880  
Income attributable to non-controlling interest225  432  300  432  
Total other income529  914  1,270  1,312  

 

(1) Primarily includes miscellaneous investment fund income, syndication and trailer fee income.

 

Other expenses (credits)

 

Consist of the following (in thousands $):

 

 For the three months endedFor the nine months ended
 Sep. 30, 2021Sep. 30, 2020Sep. 30, 2021Sep. 30, 2020
     
Costs related to energy assets— 798
Foreign exchange (gain) loss847475670(653)
Increase in contingent consideration related to the Tocqueville transaction (1)— 2,9464,4492,946
Other (2)3,0287334,5502,875
Total other expenses (credits)3,875 4,1549,6695,966

 

(1)During the first quarter, the contingent consideration was successfully renegotiated, re-measured and settled as part of the previously announced amendment to the purchase agreement.

 

(2)Includes net income attributable to non-controlling interest of $225 thousand for the three months ended September 30, 2021 and $300 thousand for the nine months ended September 30, 2021 (3 and 9 months ended September 30, 2020 - $432 thousand) as well as non-recurring professional fees and transaction costs. During the period, the Company also made a $2.6 million payment to the former owners of Central Fund of Canada Limited to cover legacy transaction costs from the 2018 acquisition.

 

 
31

 

 

 

SPROTT INC.

Notes to the interim condensed consolidated financial statements (unaudited)

For the three and nine months ended September 30, 2021 and 2020

 

Non-controlling interest

 

Non-controlling interest consist of third-party interest in our consolidated co-investments in funds. The following table provide a summary of amounts attributable to this non-controlling interest (in thousands $):

 

 Sep. 30, 2021Dec. 31, 2020
   
Assets3,6883,518
Liabilities - current(1)(12)(640)
Liabilities - long-term(1)(3,676)(2,878)

 

(1)Current and long-term liabilities attributable to non-controlling interest are included in accounts payable and accrued liabilities and other accrued liabilities, respectively.

 

 
32

 

 

 

SPROTT INC.

Notes to the interim condensed consolidated financial statements (unaudited)

For the three and nine months ended September 30, 2021 and 2020

 

6Goodwill and intangible assets

 

 

Consist of the following (in thousands $):

 

 Goodwill

Fund

management

contracts

(indefinite life)

Fund

management

contracts

(finite life)

Total
Cost    
At Dec. 31, 2019132,251  103,470  36,308  272,029  
Additions—  36,107  —  36,107  
Net exchange differences—  6,454  198  6,652  
At Dec. 31, 2020132,251  146,031  36,506  314,788  
Additions—  13,559  —  13,559  
Net exchange differences—  587  34  621  
At Sep. 30, 2021132,251  160,177  36,540  328,968  
     
Accumulated amortization    
At Dec. 31, 2019(113,102) —  (25,700) (138,802) 
Amortization charge for the year—  —  (869) (869) 
At Dec. 31, 2020(113,102) —  (26,569) (139,671) 
Amortization charge for the period—  —  (699) (699) 
At Sep. 30, 2021(113,102) —  (27,268) (140,370) 
     
Net book value at:    
Dec. 31, 202019,149  146,031  9,937  175,117  
Sep. 30, 202119,149  160,177  9,272  188,598  

 

 
33

 

 

 

SPROTT INC.

Notes to the interim condensed consolidated financial statements (unaudited)

For the three and nine months ended September 30, 2021 and 2020

 

Impairment assessment of goodwill

 

The Company has identified 5 cash generating units ("CGU") as follows:

 

•      Exchange listed products

 

•      Managed equities

 

•      Lending

 

•      Brokerage

 

•      Corporate

 

As at September 30, 2021, the Company had allocated $19.1 million (December 31, 2020 - $19.1 million) of goodwill on a relative value approach basis to the exchange listed products and managed equities CGUs.

 

In the normal course, goodwill is tested for impairment once per annum, which for the Company is during the fourth quarter of each year or earlier if there are indicators of impairment. There were no indicators of impairment in either the exchange listed products or the managed equities CGUs.

 

Impairment assessment of indefinite life fund management contracts

 

As at September 30, 2021, the Company had indefinite life intangibles related to fund management contracts of $160.2 million (December 31, 2020 - $146 million). There were no indicators of impairment as at September 30, 2021. The addition during the quarter was due to the Uranium Participation Corporation transaction ("UPC transaction").

 

Impairment assessment of finite life fund management contracts

 

As at September 30, 2021, the Company had exchange listed fund management contracts within the exchange listed products CGU of $9.3 million (December 31, 2020 - $9.9 million). There were no indicators of impairment as at September 30, 2021.

 

 
34

 

 

 

SPROTT INC.

Notes to the interim condensed consolidated financial statements (unaudited)

For the three and nine months ended September 30, 2021 and 2020

 

7Shareholders' equity

 

On May 28, 2020, the Company successfully completed a 10:1 common share consolidation. Shareholders received 1 post-consolidation share for every 10 pre-consolidation shares. All information pertaining to shares and per-share amounts in the interim financial statements for periods before May 28, 2020, reflect retrospective treatment of this share consolidation.

 

Capital stock and contributed surplus

 

The authorized and issued share capital of the Company consists of an unlimited number of common shares, without par value.

 

 

Number

of shares

Stated value

(in thousands $)

   
At Dec. 31, 201924,417,639  407,900  
Shares acquired for equity incentive plan(128,304) (2,514) 
Issuance of share capital on purchase of management contracts104,720  2,500  
Shares released on vesting of equity incentive plan248,883  4,361  
Issuance of share capital on exercise of stock options150,000  5,159  
Shares acquired and cancelled under normal course issuer bid(112,343) (2,024) 
Issuance of share capital on conversion of RSUs103,269  2,231  
Issuance of share capital under dividend reinvestment program5,501  145  
At Dec. 31, 202024,789,365  417,758  
Shares acquired for equity incentive plan(85,737) (3,369) 
Issuance of share capital to settle contingent consideration93,023  3,000  
Shares released on vesting of equity incentive plan14,322  369  
Issuance of share capital on conversion of RSUs55,833  1,147  
Issuance of share capital under dividend reinvestment program2,645  106  
At Sep. 30, 202124,869,451  419,011  

 

Contributed surplus consists of: stock option expense; earn-out shares expense; equity incentive plans' expense; and additional purchase consideration.

 

 

Stated value

(in thousands $)

  
At Dec. 31, 201943,160  
Stock-based compensation4,517  
Issuance of share capital on conversion of RSUs(2,231) 
Share-based contingent consideration related to the Tocqueville transaction4,879  
Released on exercise of stock option plan(2,655) 
Released on vesting of common shares for equity incentive plan(4,361) 
At Dec. 31, 202043,309  
Issuance of share capital to settle contingent consideration(4,879) 
Shares released on vesting of equity incentive plan(369) 
Stock-based compensation1,906  
Issuance of share capital on conversion of RSUs(1,147) 
At Sep. 30, 202138,820  

 

 
35

 

 

 

SPROTT INC.

Notes to the interim condensed consolidated financial statements (unaudited)

For the three and nine months ended September 30, 2021 and 2020

 

Stock option plan

 

The Company has an option plan (the "Plan") intended to provide incentives to directors, officers and employees of the Company and its wholly owned subsidiaries. The aggregate number of shares issuable upon the exercise of all options granted under the Plan and under all other stock-based compensation arrangements including the Trust and Equity Incentive Plan ("EIP") cannot exceed 10% of the issued and outstanding shares of the Company as at the date of grant. The options may be granted at a price that is not less than the market price of the Company's common shares at the time of grant. The options typically vest annually over a three-year period and may be exercised during a period not to exceed 10 years from the date of grant.

 

There were no stock options issued during the three and nine months ended September 30, 2021 (three and nine months ended September 30, 2020 - Nil). There were no stock options exercised during the three months ended September 30, 2021 (three months ended September 30, 2020 - Nil) and no stock options exercised during the nine months ended September 30, 2021 (nine months ended September 30, 2020 - 150,000).

 

For valuing share option grants, the fair value method of accounting is used. The fair value of option grants is determined using the Black-Scholes option-pricing model, which takes into account the exercise price of the option, the current share price, the risk-free interest rate, the expected volatility of the share price over the life of the option and other relevant factors. Compensation cost is recognized over the vesting period, assuming an estimated forfeiture rate, with an offset to contributed surplus. When exercised, amounts originally recorded against contributed surplus as well as any consideration paid by the option holder is credited to capital stock.

 

A summary of the changes in the Plan is as follows:

 

 Number of
options
Weighted
average
exercise price (CAD $)
   
Options outstanding, Dec. 31, 2019327,500  25.70  
Options exercisable, Dec. 31, 2019257,500  26.00  
Options outstanding, Dec. 31, 2020162,500  23.61  
Options exercisable, Dec. 31, 2020162,500  23.61  
Options outstanding, Sep. 30, 2021162,500  23.61  
Options exercisable, Sep. 30, 2021162,500  23.61  

 

Options outstanding and exercisable as at September 30, 2021 are as follows:

 

Exercise price (CAD $)

Number of

options outstanding

Weighted average remaining contractual life

(years)

Number of

options exercisable

    
23.30150,000  4.3150,000  
27.3012,500  4.612,500  
23.30 to 27.30162,500  4.4162,500  

 

 
36

 

 

 

SPROTT INC.

Notes to the interim condensed consolidated financial statements (unaudited)

For the three and nine months ended September 30, 2021 and 2020

 

Equity incentive plan

 

For employees in Canada, the Trust has been established and the Company will fund the Trust with cash, which will be used by the trustee to purchase: (1) on the open market, common shares of the Company that will be held in the Trust until the awards vest and are distributed to eligible members; and (2) from treasury, common shares of the Company that will be held in the Trust until the awards vest and are distributed to eligible employees. For employees in the U.S. under the EIP plan, the Company will allot common shares of the Company as either: (1) restricted stock; (2) unrestricted stock; or (3) restricted stock units ("RSUs"), the resulting common shares of which will be issued from treasury.

 

There were no RSUs granted during the three months ended September 30, 2021 (three months ended September 30, 2020 - 2,931) and 1,182 RSUs granted during the nine months ended September 30, 2021 (nine months ended September 30, 2020 - 89,858). The Trust acquired 30,000 shares in the three months ended September 30, 2021 (three months ended September 30, 2020 - 6,000) and 85,737 shares in the nine months ended September 30, 2021 (nine months ended September 30, 2020 - 128,304 shares).

 

 

Number of

common shares

  
Common shares held by the Trust, Dec. 31, 2019895,438  
Acquired128,304  
Released on vesting(248,883) 
Unvested common shares held by the Trust, Dec. 31, 2020774,859  
Acquired85,737  
Released on vesting(14,322) 
Unvested common shares held by the Trust, Sep. 30, 2021846,274  

 

Of the $56.1 million compensation expense for the nine months ended September 30, 2021, $1.9 million relates to stock-based compensation, details of which are presented in the table below (in thousands $):

 

 For the three months endedFor the nine months ended
 Sep. 30, 2021Sep. 30, 2020Sep. 30, 2021Sep. 30, 2020
     
Stock option plan— — — 10  
EIP693 1,411 1,906 2,823  
Total stock-based compensation693 1,411 1,906 2,833  

 

 
37

 

 

 

 

SPROTT INC.

Notes to the interim condensed consolidated financial statements (unaudited)

For the three and nine months ended September 30, 2021 and 2020

 

 

 

 

 

 

Basic and diluted earnings per share

 

The following table presents the calculation of basic and diluted earnings per common share:

 

 For the three months endedFor the nine months ended
 Sep. 30,
2021
Sep. 30,
2020
Sep. 30,
2021
Sep. 30,
2020
Numerator (in thousands $):    
Net income - basic and diluted8,718  8,704  23,014  20,258  
     
Denominator (Number of shares in thousands):    
Weighted average number of common shares25,705  25,511  25,688  25,436  
Weighted average number of unvested shares purchased by the Trust(844) (1,011) (792) (964) 
Weighted average number of common shares - basic24,861  24,500  24,896  24,472  
Weighted average number of dilutive stock options163  163  163  163  
Weighted average number of unvested shares under EIP943  1,202  891  1,155  
Weighted average number of common shares - diluted25,967  25,865  25,950  25,790  
     
Net income per common share    
Basic0.35  0.36  0.92  0.83  
Diluted0.34  0.34  0.89  0.79  

 

Capital management

 

The Company's objectives when managing capital are:

 

to meet regulatory requirements and other contractual obligations;

 

to safeguard the Company's ability to continue as a going concern so that it can continue to provide returns for shareholders;

 

to provide financial flexibility to fund possible acquisitions;

 

to provide adequate seed capital for the Company's new product offerings; and

 

to provide an adequate return to shareholders through growth in assets under management, growth in management fees, carried interest and performance fees and return on the Company's invested capital that will result in dividend payments to shareholders.

 

The Company's capital is comprised of equity, including capital stock, contributed surplus, retained earnings (deficit) and accumulated other comprehensive income (loss). SCP is a member of the Investment Industry Regulatory Organization of Canada ("IIROC"), SAM is a registrant of the Ontario Securities Commission ("OSC") and the U.S. Securities and Exchange Commission ("SEC"), SAM US is registered with the SEC and SGRIL is a member of the Financial Industry Regulatory Authority ("FINRA"). As a result, all of these entities are required to maintain a minimum level of regulatory capital. To ensure compliance, management monitors regulatory and working capital on a regular basis. As at September 30, 2021 and December 31, 2020, all entities were in compliance with their respective capital requirements.

 

 
38

 

 

 

SPROTT INC. 

Notes to the interim condensed consolidated financial statements (unaudited)

For the three and nine months ended September 30, 2021 and 2020

 

8Income taxes

 

 

 

 

 

The major components of income tax expense are as follows (in thousands $):

 

 For the nine months ended
   
 Sep. 30, 2021Sep. 30, 2020
Current income tax expense  
Based on taxable income of the current period8,924  2,599  
Adjustments in respect to previous years136  88  
Total current income tax expense9,060  2,687  
Deferred income tax expense  
Origination and reversal of temporary differences580  3,165  
Adjustments in respect to previous years(989) (729) 
Total deferred income tax expense(409) 2,436  
Income tax expense reported in the consolidated statements of operations8,651  5,123  

 

Taxes calculated on the Company's earnings differs from the theoretical amount that would arise using the weighted average tax rate applicable to earnings of the Company as follows (in thousands $):

 

 For the nine months ended
   
 Sep. 30, 2021Sep. 30, 2020
Income before income taxes31,665  25,381  
Tax calculated at domestic tax rates applicable to profits in the respective countries8,445  6,835  
Tax effects of:  
Non-deductible stock-based compensation160  255  
Non-taxable capital (gains) and losses27  (403) 
Intangibles58  85  
Adjustments in respect of previous periods(853) (641) 
Non-capital losses and other temporary differences not benefited previously415  (1,014) 
Rate differences and other399   
Tax charge8,651  5,123  

The weighted average statutory tax rate was 26.7% (September 30, 2020 - 26.9%). The Company has $3 million of capital tax losses from prior years that will begin to expire in 2022. The benefit of these capital losses has not been recognized.

 

 
39

 

 

 

SPROTT INC. 

Notes to the interim condensed consolidated financial statements (unaudited)

For the three and nine months ended September 30, 2021 and 2020

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets are recognized for tax loss carry-forwards to the extent that the realization of the related tax benefit through future taxable profits is probable. The ability to realize the tax benefits of these losses is dependent upon a number of factors, including the future profitability of operations in the jurisdictions in which the tax losses arose. The movement in significant components of the Company's deferred income tax assets and liabilities is as follows (in thousands $):

 

For the nine months ended September 30, 2021

 

 Dec. 31,
2020
Recognized
in income
Exchange
rate
differences
Sep. 30, 2021
Deferred income tax assets    
Stock-based compensation3,821  (168) 12  3,665  
Non-capital and capital losses2,270  (349) 11  1,932  
Other435  (25)  415  
Total deferred income tax assets6,526  (542) 28  6,012  
     
Deferred income tax liabilities    
Fund management contracts9,446  125  19  9,590  
Unrealized gains (losses)118  (1,048) 19  (911) 
Other(16) (28)  (40) 
Total deferred income tax liabilities9,548  (951) 42  8,639  
Net deferred income tax assets (liabilities) (1) (3,022) 409  (14) (2,627) 

 

For the year ended December 31, 2020

 

 

 Dec. 31,
2019
Recognized
in income
Exchange
rate
differences
Dec. 31,
2020
Deferred income tax assets    
Stock-based compensation4,117  (368) 72  3,821  
Non-capital and capital losses3,432  (1,195) 33  2,270  
Other247  230  (42) 435  
Total deferred income tax assets7,796  (1,333) 63  6,526  
Deferred income tax liabilities    
Fund management contracts6,809  2,360  277  9,446  
Unrealized gains (losses)(910) 997  31  118  
Other40  (9) (47) (16) 
Total deferred income tax liabilities5,939  3,348  261  9,548  
Net deferred income tax assets (liabilities) (1) 1,857  (4,681) (198) (3,022) 

 

(1)Deferred tax assets of $2.3 million (December 31, 2020 - $1.7 million) and deferred tax liabilities of $4.9 million (December 31, 2020 - $4.8 million) are presented on the balance sheet net by legal jurisdiction.

 

 
40

 

 

 

SPROTT INC.

 

Notes to the interim condensed consolidated financial statements (unaudited)

For the three and nine months ended September 30, 2021 and 2020

 

9Fair value measurements

 

 

 

 

 

The following tables present the Company's recurring fair value measurements within the fair value hierarchy. The Company did not have non-recurring fair value measurements as at September 30, 2021 and December 31, 2020 (in thousands $).

 

Short-term investments

 

Sep. 30, 2021Level 1Level 2Level 3Total
Public equities and share purchase warrants2,786  1,945  224  4,955  
Private holdings—  —  1,690  1,690  
Total net recurring fair value measurements2,786  1,945  1,914  6,645  
  
Dec. 31, 2020Level 1Level 2Level 3Total
Public equities and share purchase warrants5,101  1,379  271  6,751  
Fixed income securities—  731  —  731  
Private holdings—  —  1,993  1,993  
Total net recurring fair value measurements5,101  2,110  2,264  9,475  

 

Co-investments

 

Sep. 30, 2021Level 1Level 2Level 3Total
Co-investments in funds—  68,24668,246
Total net recurring fair value measurements—  68,246  —  68,246  
  
Dec. 31, 2020Level 1Level 2Level 3Total
Co-investments in funds—  76,0266,44182,467
Total net recurring fair value measurements—  76,026  6,441  82,467  

 

 
41

 

 

 

SPROTT INC.

 

Notes to the interim condensed consolidated financial statements (unaudited)

For the three and nine months ended September 30, 2021 and 2020

 

Other assets

 

Sep. 30, 2021Level 1Level 2Level 3Total
Digital gold strategies—  —  9,624  9,624  
Total net recurring fair value measurements—  —  9,624  9,624  
  
Dec. 31, 2020Level 1Level 2Level 3Total
Digital gold strategies—  —  11,518  11,518  
Total net recurring fair value measurements—  —  11,518  11,518  

 

The following tables provides a summary of changes in the fair value of Level 3 financial assets (in thousands $):

 

Short-term investments

 

 Changes in the fair value of Level 3 measurements - Sep. 30, 2021
 Dec. 31,
2020
Purchases and
reclassifications
SalesNet unrealized
gains (losses)
included in net
income
Sep. 30,
2021
Share purchase warrants271  103  (2) (148) 224  
Private holdings1,993  —  —  (303) 1,690  
 2,264  103  (2) (451) 1,914  

 

 Changes in the fair value of Level 3 measurements - Dec. 31, 2020
 Dec. 31,
2019
Purchases and
reclassifications
SalesNet unrealized
gains (losses)
included in net
income
Dec. 31,
2020
Private holdings1,864  —  (15) 144  1,993  
Fixed income securities766  (783) —  17  —  
Share purchase warrants—  271  —  —  271  
 2,630  (512) (15) 161  2,264  

 

 
42

 

 

 

 

SPROTT INC.

 

Notes to the interim condensed consolidated financial statements (unaudited)

For the three and nine months ended September 30, 2021 and 2020

 

Co investments

 

 Changes in the fair value of Level 3 measurements - Sep. 30, 2021
 Dec. 31,
2020
Purchases and
reclassifications
SalesNet unrealized
gains (losses)
included in net
income
Sep. 30,
2021
Co-investments in funds6,441  (6,441) —  —  —  
 6,441  (6,441) —  —  —  

 

 Changes in the fair value of Level 3 measurements - Dec. 31, 2020
 Dec. 31,
2019
Purchases and
reclassifications
SalesNet unrealized
gains (losses)
included in net
income
Dec. 31,
2020
Co-investments in funds4,530  1,628  —  283  6,441  
 4,530  1,628  —  283  6,441  

 

Other assets

 

 Changes in the fair value of Level 3 measurements - Sep. 30, 2021
 Dec. 31,
2020
Purchases and
reclassifications
SalesNet unrealized
gains (losses)
included in net
income
Sep. 30,
2021
Digital gold strategies11,518  100  (2,000)  9,624  
 11,518  100  (2,000)  9,624  

 

 Changes in the fair value of Level 3 measurements - Dec. 31, 2020
 Dec. 31,
2019
Purchases and
reclassifications
SalesNet unrealized
gains (losses)
included in net
income
Dec. 31,
2020
Digital gold strategies18,913500—  (7,895)11,518
 18,913500—  (7,895)11,518

 

During the nine months ended September 30, 2021, the Company transferred public equities of $Nil (December 31, 2020 - $0.5 million) from Level 2 to Level 1 within the fair value hierarchy. For the nine months ended September 30, 2021, the Company purchased level 3 investments of $0.1 million (December 31, 2020 - $2.1 million) and sold level 3 investments of $2 million (December 31, 2020 - $Nil). Total proceeds from the sale were $6.5 million, with the $4.5 million gain recorded in gain (loss) on investments in the consolidated statements of operations and comprehensive income. For the nine months ended September 30, 2021, the Company transferred $Nil (December 31, 2020 - $Nil) from Level 3 to Level 1 within the fair value hierarchy. For the nine months ended September 30, 2021, the Company transferred $0.2 million (December 31, 2020 -$0.3 million) from level 2 to level 3 due to the impact of volatility of the underlying security on the fair value of share purchase warrants. For the nine months ended September 30, 2021, the Company transferred $6.5 million (December 31, 2020 - $0.8 million) from Level 3 to Level 2 within the fair value hierarchy.

 

 
43

 

 

 

SPROTT INC.

 

Notes to the interim condensed consolidated financial statements (unaudited)

For the three and nine months ended September 30, 2021 and 2020

 

The following table presents the valuation techniques used by the Company in measuring fair values:

 

TypeValuation technique
Public equities and share purchase warrantsFair values are determined using pricing models which incorporate all available market-observable inputs.
Alternative funds and private equity fundsFair values are based on the last available net asset value.
Fixed income securitiesFair values are based on independent market data providers or third-party broker quotes.
Private holdings (including digital gold strategies)Fair values based on variety of valuation techniques, including discounted cash flows, comparable recent transactions and other techniques used by market participants.

 

The Company’s Level 3 securities consist of private holdings, private equity funds and fixed income securities of private companies. The significant unobservable inputs used in these valuation techniques can vary considerably over time, and include grey market financing prices, discount rates and extraction recovery rates of mining projects. A significant change in any of these inputs in isolation would result in a material impact in fair value measurement. The potential impact of a 5% change in the significant unobservable inputs on profit or loss would be approximately $0.6 million (December 31, 2020 - $1 million).

 

Financial instruments not carried at fair value

 

The carrying amounts of fees receivable, other assets, accounts payable and accrued liabilities and compensation payable represents a reasonable approximation of fair value.

 

10Dividends

 

 

 

 

The following dividends were declared by the Company during the three and nine months ended September 30, 2021:

 

Record datePayment Date

Cash dividend

per share

Total dividend amount (in thousands $)
March 8, 2021 - Regular dividend Q4 2020March 23, 2021$0.256,426  
May 17, 2021 - Regular dividend Q1 2021June 1, 2021$0.256,426  
August 16, 2021 - Regular dividend Q2 2021August 31, 2021$0.256,426  
Dividends (1)  19,278  

 

(1)   Subsequent to quarter end, on November 4, 2021, a regular dividend of $0.25 per common share was declared for the quarter ended September 30, 2021. This dividend is payable on November 30, 2021 to shareholders of record at the close of business on November 15, 2021.

 

 
44

 

 

 

SPROTT INC.

 

Notes to the interim condensed consolidated financial statements (unaudited)

For the three and nine months ended September 30, 2021 and 2020

 

11Segmented information

 

 

 

 

 

For management purposes, the Company is organized into business units based on its products, services and geographical location and has five reportable segments as follows:

 

Exchange listed products (reportable), which provides management services to the Company's closed-end physical trusts and exchange traded funds ("ETFs"), both of which are actively traded on public securities exchanges;

 

Managed equities (reportable), which provides asset management and sub-advisory services to the Company's branded funds, fixed-term LPs and managed accounts;

 

Lending (reportable), which provides lending and streaming activities through limited partnership vehicles as well as through direct lending activities using the Company's balance sheet;

 

Brokerage (reportable), which includes the activities of our Canadian and U.S. broker-dealers;

 

Corporate (reportable), which provides capital, balance sheet management and enterprise shared services to the Company's subsidiaries;

 

All other segments (non-reportable), which do not meet the definition of reportable segments as per IFRS 8.

 

Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on earnings before interest expense, income taxes, amortization and impairment of intangible assets and goodwill, gains and losses on proprietary investments (as if such gains and losses had not occurred), foreign exchange gains and losses, one time non-recurring expenses, non-cash and non-recurring stock-based compensation, carried interest and performance fees and carried interest and performance fee payouts (adjusted base EBITDA).

 

Adjusted base EBITDA is not a measurement in accordance with IFRS and should not be considered as an alternative to net income or any other measure of performance under IFRS.

 

Transfer pricing between operating segments is performed on an arm's length basis in a manner similar to transactions with third parties.

 

The following tables present the operations of the Company's segments (in thousands $):

 

For the three months ended September 30, 2021

 

 Exchange
listed
products

Managed

equities

LendingBrokerageCorporateConsolidation,
elimination
and all other
segments
Consolidated
Total revenue18,2253,7086,0638,1324,0321,13141,291
Total expenses8,3963,6582,7697,3106,7251,16530,023
Income (loss) before income taxes9,829503,294822(2,693)(34)11,268
Adjusted base EBITDA12,7872,6133,4742,341(4,377)(125)16,713

 

 
45

 

 

 

SPROTT INC.

 

Notes to the interim condensed consolidated financial statements (unaudited)

For the three and nine months ended September 30, 2021 and 2020

 

For the three months ended September 30, 2020

 

 Exchange
listed
products

Managed

equities

LendingBrokerageCorporateConsolidation,
elimination
and all other
segments
Consolidated
Total revenue11,20910,3832,53510,19134074135,399
Total expenses2,4006,4752,1267,0785,6021,40125,082
Income (loss) before income taxes8,8093,9084093,113(5,262)(660)10,317
Adjusted base EBITDA9,3963,1411,5223,030(4,590)(475)12,024

 

For the nine months ended September 30, 2021

 

 Exchange
listed
products

Managed

equities

LendingBrokerageCorporateConsolidation,
elimination
and all other
segments
Consolidated
Total revenue43,46315,48517,84532,8414,6723,047117,353
Total expenses13,69516,58011,65024,72115,2253,81785,688
Income (loss) before income taxes29,768(1,095)6,1958,120(10,553)(770)31,665
Adjusted base EBITDA33,4968,4766,6999,610(11,754)(159)46,368

 

For the nine months ended September 30, 2020

 

 Exchange
listed
products

Managed

equities

LendingBrokerageCorporateConsolidation,
elimination
and all other
segments
Consolidated
Total revenue26,23023,3629,43522,886(492)1,99883,419
Total expenses5,84911,2694,34817,07213,2446,25658,038
Income (loss) before income taxes20,38112,0935,0875,814(13,736)(4,258)25,381
Adjusted base EBITDA21,0667,4744,8495,530(9,757)25329,415

 

For geographic reporting purposes, transactions are primarily recorded in the location that corresponds with the underlying subsidiary's country of domicile that generates the revenue. The following table presents the revenue of the Company by geographic location (in thousands $):

 

 For the three months endedFor the nine months ended
 Sep. 30,
2021
Sep. 30,
2020
Sep. 30,
2021
Sep. 30,
2020
Canada37,808  27,628  104,979  68,719  
United States3,483  7,771  12,374  14,700  
 41,291  35,399  117,353  83,419  

 

 
46

 

 

SPROTT INC.

 

Notes to the interim condensed consolidated financial statements (unaudited)

For the three and nine months ended September 30, 2021 and 2020

 

12Loan facility

  

 

As at September 30, 2021, the Company had $33.6 million (December 31, 2020 - $17 million) outstanding on its credit facility, all of which is due on December 14, 2025. The increase was primarily to fund the cost of the Tocqueville and UPC transactions.

 

The Company has access to a credit facility of $70 million with a major Canadian schedule I chartered bank. Amounts under the facility may be borrowed through prime rate loans or bankers’ acceptances. Amounts may also be borrowed in U.S. dollars through base rate loans. Subsequent to the quarter-end, on November 4, 2021, the Company upsized its credit facility to $120 million for general corporate purposes.

 

As at September 30, 2021, the Company was in compliance with all covenants, terms and conditions under the credit facility. Key terms under the credit facility are noted below:

 

Structure

 

5-year, $70 million revolver with "bullet maturity" December 14, 2025

 

Interest Rate

 

Prime rate + 0 bps or;

 

Banker acceptance rate + 170 bps

 

Covenant Terms

 

Minimum AUM: 70% of AUM on November 13, 2020

 

Debt to EBITDA less than or equal to 2.5:1

 

EBITDA to interest expense more than or equal to 2.5:1

 

 

13Commitments and provisions

  

 

Besides the Company's long-term lease agreement, there are commitments to make investments in the net investments portfolio of the Company. As at September 30, 2021, the Company had $7.6 million in co-investment commitments from the lending segment, all due within one year (December 31, 2020 - $4.6 million).

 

 

14Subsequent events

  

 

Subsequent to the quarter-end, in November, we announced that we are further expanding our uranium franchise with an agreement to acquire exclusive licensing rights to the index tracked by the North Shore Global Uranium ETF (“URNM”), which has the potential to result in a transaction that could add approximately $900 million in AUM.

 

 
47

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate Information

 

 

 

 

 

Head OfficeLegal Counsel
Sprott Inc.Stikeman Elliot LLP
Royal Bank Plaza, South Tower5300 Commerce Court West
200 Bay Street, Suite 2600199 Bay Street
Toronto, Ontario M5J 2J1, CanadaToronto, Ontario M5L 1B9
T: 416.943.8099 
1.855.943.8099Auditors
 KPMG LLP
Directors & OfficersBay Adelaide Centre
Ronald Dewhurst, Chairman333 Bay Street, Suite 4600
Rick Rule, DirectorToronto, Ontario M5H 2S5
Sharon Ranson, FCPA, FCA, Director 
Graham Birch, DirectorInvestor Relations
Rosemary Zigrossi, DirectorShareholder requests may be directed to
Barbara Connolly Keady, DirectorInvestor Relations by e-mail at ir@sprott.com
Peter Grosskopf, Chief Executive Officer and Directoror via telephone at 416.943.8099
Whitney George, Presidentor toll free at 1.855.943.8099
Kevin Hibbert, FCPA, FCA, Chief Financial Officer 
Arthur Einav, Corporate SecretaryStock Information
US Transfer Agent and RegistrarSprott Inc. common shares are traded on the
New York Stock Exchange and Toronto Stock
Continental Stock Transfer & Trust CompanyExchange under the symbol “SII”
1 State Street 30th Floor 
New York, NY 10004-1561 
212.509.4000 
continentalstock.com 
  
Canadian Transfer Agent and Registrar 
TMX Equity Transfer Services 
200 University Avenue, Suite 300 
Toronto, Ontario M5H 4H1 
Toll Free: 1.866.393.4891 
www.tmxequitytransferservices.com