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Sprott (SII)

Filed: 5 Nov 21, 7:00am

Exhibit 99.4

 

SPROTT ANNOUNCES THIRD QUARTER 2021 RESULTS

 

TORONTO, ON - November 5, 2021 - Sprott Inc. (NYSE/TSX: SII) (“Sprott” or the “Company”) today announced its financial results for the three and nine months ended September 30, 2021.

 

Management commentary

 

"During the third quarter of 2021, Sprott demonstrated the strength of our strategy and continued to deliver strong financial results despite precious metals trading sideways for most of the period," said Peter Grosskopf, CEO of Sprott. “Subsequent to quarter-end, we surpassed $20 billion in AUM, a new historic high for Sprott, reached in large part due to the efforts of our employee team."

 

"In July we completed the acquisition of Uranium Participation Corp. and launched the Sprott Physical Uranium Trust ("SPUT"), which has grown to $1.6 billion in assets," added Mr. Grosskopf. "In November, subsequent to the end of the third quarter, 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."

 

Financial highlights

 

Key Assets under Management ("AUM")1 highlights

 

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 Uranium Participation Corporation transaction ("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. Subsequent to quarter-end, AUM surpassed $20 billion. A new high for the Company.

 

Key revenue highlights

 

Management fees were $28.6 million in the quarter, up $8.7 million (44%) from the three months ended September 30, 2020 and $76.1 million on a year-to-date basis, up $25.2 million (50%) from the nine months ended September 30, 2020. 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 nine months ended September 30, 2020. Net fees1 were $26.1 million in the quarter, up $7.2 million (38%) from the three months ended September 30, 2020 and $73 million on a year-to-date basis, up $25.2 million (53%) from the nine months ended September 30, 2020. 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 were $11.3 million in the quarter, up $1.9 million (20%) from the three months ended September 30, 2020 and $31.1 million on a year-to-date basis, up $10.4 million (50%) from the nine months ended September 30, 2020. Net commissions1 were $5.8 million in the quarter, up $0.1 million (1%) from the three months ended September 30, 2020 and $17 million on a year-to-date basis, up $3.3 million (24%) from the nine months ended September 30, 2020. 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 was $0.6 million in the quarter, down $0.2 million (25%) from the three months ended September 30, 2020 and $2.7 million on a year-to-date basis, up $0.4 million (18%) from the nine months ended September 30, 2020. 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.

 

Gains on investments were $0.3 million this quarter, down $4.1 million (93%) from the three months ended September 30, 2020 and losses were $1.8 million on a year-to-date basis, compared to gains of $8.2 million in the nine months ended September 30, 2020. 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.

 

Key expense highlights

 

Net compensation1 was $12.8 million in the quarter, up $0.5 million (4%) from the three months ended September 30, 2020. This compares to net fees and adjusted base EBITDA growth of 38% and 39%, respectively, over the same time period. Net compensation on a year-to-date basis was $35.4 million, up $7.3 million (26%) from the nine months ended September 30, 2020. This compares to net fees and adjusted base EBITDA growth of 53% and 58%, respectively, over the same time period. Net revenues, adjusted base EBITDA and operating margins are key drivers of the company’s compensation program. The company’s compensation ratio (net compensation divided by net fees and net commissions) on a year-to-date basis was 39%, down from 46% in the prior period.
   
SG&A was $3.7 million in the quarter, up $1.2 million (49%) from the three months ended September 30, 2020 and $10.5 million on a year-to-date basis, up $1.7 million (20%) from the nine months ended September 30, 2020. The increase was mainly due to higher insurance, regulatory and technology costs.

 

 

 

 

Earnings summary

 

Net income was $8.7 million ($0.35 per share) in the quarter, largely unchanged from the three months ended September 30, 2020 and $23 million ($0.92 per share) on a year-to-date basis, up 14%, or $2.8 million ($0.09 per share) from the nine months ended September 30, 2020.

 

Adjusted base EBITDA1 was $16.7 million ($0.67 per share) in the quarter, up 39%, or $4.7 million ($0.18 per share) from the three months ended September 30, 2020 and $46.4 million ($1.86 per share) on a year-to-date basis, up 58%, or $17 million ($0.66 per share) from the nine months ended September 30, 2020.

 

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.

 

Subsequent events

 

On November 4, 2021, the Sprott Board of Directors announced a quarterly dividend of $0.25 per share.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1 See “Key performance indicators (non-IFRS financial measures)” section on page 5 of the MD&A

 

 

 

 

Supplemental financial information

 

Please refer to the September 30, 2021 interim financial statements of the Company and the related management discussion and analysis filed earlier this morning for further details into the company's financial position as at September 30, 2021 and the company's financial performance for the three and nine months ended September 30, 2021.

 

Schedule 1 - AUM continuity

 

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 the MD&A.
(2)Includes new AUM from fund acquisitions and lost AUM from fund divestitures and capital distributions of our lending LPs.
(3)Management fee rate represents the net amount received by the Company.
(4)Includes institutional managed accounts.
(5)Includes Sprott Korea Corp. and high net worth discretionary managed accounts in the U.S.
(6)No performance fees are earned on exchange listed products. Performance fees are earned on all precious metals strategies (other than bullion funds) based on returns  above relevant benchmarks. Other managed equities strategies primarily earn performance fees on flow-through products. Lending funds earn carried interest calculated as a pre-determined net profit over a preferred return.

 

 

 

 

Schedule 2 - Summary financial information

 

(In thousands $)

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

  

 

 

 

Schedule 3 - EBITDA reconciliation

 

     
 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.

 

 

Conference Call and Webcast

 

A conference call and webcast will be held today, November 5,, 2021 at 10:00 am ET to discuss the Company's financial results. To participate in the call, please dial (855) 458-4215 ten minutes prior to the scheduled start of the call and provide conference ID 3490247 A taped replay of the conference call will be available until Friday, November 12, 2021 by calling (855) 859-2056, reference number 3490247 . The conference call will be webcast live at www.sprott.com and https://edge.media-server.com/mmc/p/is39djmh

 

 *Non-IFRS Financial Measures

 

This press release includes financial terms (including AUM, net revenues, net commissions, net fees, expenses, adjusted base EBITDA, net compensation and net sales) that the Company utilizes to assess the financial performance of its business that are not measures recognized under International Financial Reporting Standards (“IFRS”). These non-IFRS measures should not be considered alternatives to performance measures determined in accordance with IFRS and may not be comparable to similar measures presented by other issuers. For additional information regarding the Company's use of non-IFRS measures, including the calculation of these measures, please refer to the “Non-IFRS Financial Measures” section of the Company's Management's Discussion and Analysis and its annual financial statements available on the Company's website at www.sprott.com and on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.

 

 

 

 

Fund Reorganization Information

 

Subject to the approval of a reorganization by both the Board of Trustees of the Exchange Traded Concepts Trust, of which URNM is a series, and shareholders of URNM, it is anticipated that URNM would be reorganized into a newly created series of the Sprott Funds Trust, the Sprott Uranium Miners ETF, which series will be advised by Sprott Asset Management and sub-advised by ALPS Advisors, Inc. A Registration Statement for the Sprott Uranium Miners ETF has been filed with the SEC but is not yet effective. Information contained therein is subject to completion or amendment. Fund securities may not be sold nor may offers to buy be accepted prior to the time the Registration Statement becomes effective.

 

Investors and shareholders of URNM are urged to carefully read the proxy statement/prospectus to be filed with the SEC in connection with the reorganization in its entirety when it becomes available because it will contain important information about the fund reorganization. The proxy statement/prospectus will not constitute an offer to buy or sell securities in any jurisdiction where such offer or sale is not permitted. Shareholders may obtain a free copy of the proxy statement/prospectus (when it becomes available) at the SEC’s web site at www.sec.gov.

 

This information shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. This press release is also not intended to solicit a proxy from any shareholder of URNM. The solicitation of the purchase or sale of securities or of proxies to effect the fund reorganization will only be made by a definitive proxy statement/prospectus.

 

Investors should consider a fund’s investment objectives, risks, charges and expenses before investing. The prospectus and the summary prospectus contain this and other information about the fund. To obtain a prospectus or a summary prospectus of a series of the Sprott Funds Trust, contact your financial advisor or download and/or request one at https://sprott.com/investment-strategies/mining-equity-funds/ or call Sprott Asset Management at 888.622.1813; the prospectus and summary prospectus for URNM can be obtained from your financial advisor, by calling 877-URNM-ETF (876-6383), or at https://urnmetf.com/investor-materials. Please read the prospectus and/or summary prospectus carefully before investing. Past performance is no guarantee of future results.

 

URNM is advised by Exchange Traded Concepts, LLC (“ETC”) and distributed by SEI Investments Distribution Co., FINRA Member, (1 Freedom Valley Drive, Oaks, PA 19456), which is not affiliated with ETC, North Shore Indices, Inc. or any affiliates. Investments in URNM are not insured by the FDIC or any other governmental agency, are subject to risks, including a possible loss of the principal amount invested. ALPS Distributors, Inc. will be the distributor for the Sprott Uranium Miners ETF and is a registered broker-dealer and FINRA Member.

 

Forward Looking Statements

Certain statements in this press release 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 press release contains Forward-Looking Statements pertaining to: (i) the potential purchase by Sprott Asset Management LP of assets relating to managing the North Shore Global Uranium Mining ETF (URNM) and (ii) 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, without limitation: (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; and (iv) the impact of COVID-19; and (v) those assumptions disclosed under the heading "Critical Accounting Estimates, Judgments and Changes in Accounting Policies" in the Company’s MD&A for the period ended September 30, 2021. 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 favorable 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; (xxxii) those risks described under the heading "Risk Factors" in the Company’s annual information form dated February 25, 2021; and (xxxiii) those risks described under the headings "Managing financial risks " and "Managing non-financial risks" in the Company’s MD&A for the period ended September 30, 2021. 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.

 

 

 

 

About Sprott

Sprott is a global leader in precious metal and real asset investments. With offices in Toronto, New York, and London, Sprott is dedicated to providing investors with specialized investment strategies that include Exchange Listed Products, Managed Equities, Lending, and Brokerage. Sprott’s common shares are listed on the New York Stock Exchange under the symbol (NYSE:SII) and on the Toronto Stock Exchange under the symbol (TSX:SII). For more information, please visit www.sprott.com.

 

 

Investor contact information:

Glen Williams

Managing Director

Investor and Institutional Client Relations;

Head of Corporate Communications

(416) 943-4394

gwilliams@sprott.com