SII - Sprott Announces Third Quarter 2023 Results

November, 01 2023 07:00 AM Sprott Inc.

TORONTO, Nov. 01, 2023 (GLOBE NEWSWIRE) -- Sprott Inc. (NYSE/TSX: SII) (“Sprott” or the “Company”) today announced its financial results for the three and nine months ended September 30, 2023.

Management commentary
"Despite another challenging period for investors in all asset categories, Sprott continues to deliver positive net sales and asset growth, finishing September with $25.4 billion in Assets Under Management ("AUM")," said Whitney George, Chief Executive Officer of Sprott. "Our expansion into energy transition investments is paying off, driven largely by the success of our uranium strategies. Since entering this area in mid-2021, our uranium strategies have grown to $6.3 billion in AUM and energy transition investments now make up approximately 25% of our consolidated AUM. During the third quarter, the Sprott Physical Uranium Trust grew by $1.1 billion, due mostly to market value appreciation. In addition, our uranium miners ETFs, the Sprott Uranium Miners ETF and Sprott Uranium Miners UCITS ETF (URNM) and the Sprott Junior Uranium Miners ETF (URNJ) were among the best-performing ETFs in any asset category in the third quarter, rising by approximately 41% and 39%, respectively, while attracting $199 million in total new AUM."

"We are confident in our positioning and believe our core investment themes of precious metals and energy transition investments will play out profitably for our clients and shareholders in the quarters and years ahead," added Mr. George.

Key AUM highlights ¹

AUM was $25.4 billion as at September 30, 2023, up $0.3 billion (1%) from June 30, 2023 and up $2 billion (8%) from December 31, 2022. On a three and nine months ended basis, we benefited from strong uranium prices and inflows to our exchange listed products which more than offset the exit of Korea. We also benefited from capital raises in our private strategies funds.

Key revenue highlights

Management fees were $33.1 million in the quarter, up $4 million (14%) from the quarter ended September 30, 2022 and $97.8 million on a year-to-date basis, up $10.8 million (12%) from the nine months ended September 30, 2022. Carried interest and performance fees were nil in the quarter and $0.4 million on a year-to-date basis, down $1.7 million (81%) from the nine months ended September 30, 2022. Net fees were $30.1 million in the quarter, up $3.3 million (12%) from the quarter ended September 30, 2022 and $89.2 million on a year-to-date basis, up $8.9 million (11%) from the nine months ended September 30, 2022. Our revenue performance was due to higher average AUM in our exchange listed products and private strategies segments. On a year-to-date basis, these increases were partially offset by lower average AUM in our managed equities segment and lower carried interest crystallization in our private strategies segment.
Commission revenues were $0.5 million in the quarter, down $5.6 million (91%) from the quarter ended September 30, 2022 and $7 million on a year-to-date basis, down $18.7 million (73%) from the nine months ended September 30, 2022. Net commissions were $0.4 million in the quarter, down $2.9 million (89%) from the quarter ended September 30, 2022 and $3.9 million on a year-to-date basis, down $9.4 million (71%) from the nine months ended September 30, 2022. Lower commissions were due to lower ATM activity in our physical uranium trust and the sale of our former Canadian broker-dealer.
Finance income was $1.2 million in the quarter, up $0.2 million (27%) from the quarter ended September 30, 2022 and $3.6 million on a year-to-date basis, up $0.1 million (2%) from the nine months ended September 30, 2022. Our results were primarily driven by higher income generation in co-investment positions we hold in LPs managed in our private strategies segment.

Key expense highlights

Net compensation expense was $15.1 million in the quarter, up $1.1 million (8%) from the quarter ended September 30, 2022 and $45.5 million on a year-to-date basis, up $1.8 million (4%) from the nine months ended September 30, 2022. The increase in the quarter and on a year-to-date basis was primarily due to new hires and increased AIP accruals on higher net fee generation.
SG&A was $4 million in the quarter, down $0.2 million (6%) from the quarter ended September 30, 2022 and $13.3 million on a year-to-date basis, up $1.4 million (11%) from the nine months ended September 30, 2022. The decrease in the quarter was due to lower professional services fees and the increase on a year-to-date basis was due to higher marketing and technology costs.

Earnings summary

Net income was $6.8 million ($0.27 per share) in the quarter, up $3.7 million ($0.15 per share) from the quarter ended September 30, 2022 and $32.1 million on a year-to-date basis ($1.27 per share), up $21.8 million ($0.86 per share) from the nine months ended September 30, 2022. Net income in the quarter benefited from higher net fees on improved average AUM in our exchange listed products and private strategies segments. On a year-to-date basis we benefited from the realization of an unrecorded contingent asset relating to a prior period acquisition, as well as higher net fees.
Adjusted base EBITDA was $17.9 million ($0.71 per share) in the quarter, up $1 million, or 6% ($0.04 per share) from the quarter ended September 30, 2022 and was $53.1 million ($2.10 per share) on a year-to-date basis, up $0.2 million ($0.01 per share) from the nine months ended September 30, 2022. The increase in the quarter and on a year-to-date basis was due to higher average AUM in our exchange listed products and private strategies segments more than offsetting lower commission income due to the sale of our former Canadian broker-dealer.

Subsequent events

On October 31, 2023, the Sprott Board of Directors announced a quarterly dividend of $0.25 per share.

^{1 See “non-IFRS financial measures” section in this press release and schedule 2 and 3 of "Supplemental financial information"}

Supplemental financial information

Please refer to the September 30, 2023 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, 2023 and the company's financial performance for the three and nine months ended September 30, 2023.

Schedule 1 - AUM continuity

3 months results















(In millions $)
AUM Jun. 30, 2023
Net inflows ⁽¹⁾
Market value changes
Other net inflows ⁽¹⁾
AUM Sep. 30, 2023

Blended net management fee rate ⁽²⁾
Exchange listed products







- Physical trusts







- Physical Gold Trust
6,124
(28)
(230)
-
5,866

0.35%
- Physical Uranium Trust
3,473
73
1,065
-
4,611

0.30%
- Physical Gold and Silver Trust
4,056
-
(140)
-
3,916

0.40%
- Physical Silver Trust
3,986
(49)
(111)
-
3,826

0.45%
- Physical Platinum & Palladium Trust
110
3
1
-
114

0.50%
- Exchange Traded Funds







- Energy Transition Materials ETFs
1,035
207
438
-
1,680

0.60%
- Precious Metals ETFs
355
(4)
(35)
-
316

0.27%

19,139
202
988
-
20,329

0.39%








Managed equities







- Precious metals strategies
1,633
(33)
(168)
-
1,432

0.91%
- Other ⁽³⁾
1,089
-
(66)
-
1,023

1.10%

2,722
(33)
(234)
-
2,455

0.99%








Private strategies
2,577
(29)
52
14
2,614

0.90%








Core AUM
24,438
140
806
14
25,398

0.50%








Non-core AUM
704
-
(2)
(702) ⁽⁴⁾
-

n/a








Total AUM ⁽⁵⁾
25,142
140
804
(688)
25,398

0.50%








9 months results















(In millions $)
AUM Dec. 31, 2022
Net inflows ⁽¹⁾
Market value changes
Other net inflows ⁽¹⁾
AUM Sep. 30, 2023

Blended net management fee rate ⁽²⁾
Exchange listed products







- Physical trusts







- Physical Gold Trust
5,746
71
49
-
5,866

0.35%
- Physical Uranium Trust
2,876
214
1,521
-
4,611

0.30%
- Physical Gold and Silver Trust
3,998
-
(82)
-
3,916

0.40%
- Physical Silver Trust
4,091
63
(328)
-
3,826

0.45%
- Physical Platinum & Palladium Trust
138
9
(33)
-
114

0.50%
- Exchange Traded Funds







- Energy Transition Materials ETFs
857
326
487
10
1,680

0.60%
- Precious Metals ETFs
349
(6)
(27)
-
316

0.27%

18,055
677
1,587
10
20,329

0.39%








Managed equities







- Precious metals strategies
1,721
(94)
(195)
-
1,432

0.91%
- Other ⁽³⁾
1,032
(5)
(4)
-
1,023

1.10%

2,753
(99)
(199)
-
2,455

0.99%








Private strategies
1,880
45
1
688
2,614

0.90%








Core AUM
22,688
623
1,389
698
25,398

0.50%








Non-core AUM
745
(26)
(17)
(702) ⁽⁴⁾
-

n/a








Total AUM ⁽⁵⁾
23,433
597
1,372
(4)
25,398

0.50%








⁽¹⁾ See "Net inflows" and "Other net inflows" in the key performance indicators and non-IFRS and other financial measures section of the MD&A. Year-to-date figures were reclassified to conform with current presentation
⁽²⁾ Management fee rate represents the weighted average fees for all funds in the category, net of trailer, sub-advisor and fund expenses
⁽³⁾ Includes institutional managed accounts and high net worth discretionary managed accounts in the U.S.
⁽⁴⁾ We exited our non-core asset management business domiciled in Korea. Historically, Korea was immaterial to our overall operations as it accounted for less than 1% of consolidated net income and adjusted base EBITDA.
⁽⁵⁾ No performance fees are earned on exchange listed products. Performance fees are earned on all precious metals strategies and are based on returns above relevant benchmarks. Other managed equities strategies primarily earn performance fees on flow-through products. Private strategies LPs earn carried interest calculated as a predetermined net profit over a preferred return.

Schedule 2 - Summary financial information

(In thousands $)
Q3 2023
Q2 2023
Q1 2023
Q4 2022
Q3 2022
Q2 2022
Q1 2022
Q4 2021
Summary income statement








Management fees
33,116

33,222

31,434

28,405

29,158

30,620

27,172

27,783

Trailer, sub-advisor and fund expense
(1,557
)
(1,635
)
(1,554
)
(1,204
)
(1,278
)
(1,258
)
(853
)
(872
)
Direct payouts
(1,472
)
(1,342
)
(1,187
)
(1,114
)
(1,121
)
(1,272
)
(1,384
)
(1,367
)
Carried interest and performance fees
-

388

-

1,219

-

-

2,046

4,298

Carried interest and performance fee payouts - internal
-

(236
)
-

(567
)
-

-

(1,029
)
(2,516
)
Carried interest and performance fee payouts - external ⁽¹⁾
-

-

-

(121
)
-

-

(476
)
(790
)
Net fees
30,087

30,397

28,693

26,618

26,759

28,090

25,476

26,536

Commissions
539

1,647

4,784

5,027

6,101

6,458

13,077

14,153

Commission expense - internal
(88
)
(494
)
(1,727
)
(1,579
)
(2,385
)
(2,034
)
(3,134
)
(4,128
)
Commission expense - external ⁽¹⁾
(92
)
(27
)
(642
)
(585
)
(476
)
(978
)
(3,310
)
(3,016
)
Net Commissions
359

1,126

2,415

2,863

3,240

3,446

6,633

7,009

Finance income
1,181

1,277

1,180

1,439

933

1,186

1,433

788

Gain (loss) on investments
(1,441
)
(1,950
)
1,958

(930
)
45

(7,884
)
(1,473
)
(43
)
Other income ⁽²⁾
(73
)
19,763

1,250

999

(227
)
170

208

313

Total net revenues
30,113

50,613

35,496

30,989

30,750

25,008

32,277

34,603










Compensation
16,825

21,610

19,103

17,030

18,934

19,364

21,789

20,632

Direct payouts
(1,472
)
(1,342
)
(1,187
)
(1,114
)
(1,121
)
(1,272
)
(1,384
)
(1,367
)
Carried interest and performance fee payouts - internal
-

(236
)
-

(567
)
-

-

(1,029
)
(2,516
)
Commission expense - internal
(88
)
(494
)
(1,727
)
(1,579
)
(2,385
)
(2,034
)
(3,134
)
(4,128
)
Severance, new hire accruals and other
(122
)
(4,067
)
(1,257
)
(1,240
)
(1,349
)
(2,113
)
(514
)
(187
)
Net compensation
15,143

15,471

14,932

12,530

14,079

13,945

15,728

12,434

Severance, new hire accruals and other ⁽³⁾
122

4,067

1,257

1,240

1,349

2,113

514

187

Selling, general and administrative
4,000

4,988

4,267

4,080

4,239

4,221

3,438

4,172

Interest expense
882

1,087

1,247

1,076

884

483

480

239

Depreciation and amortization
731

748

706

710

710

959

976

1,136

Other expenses
3,811

471

2,824

1,650

5,697

868

1,976

2,910

Total expenses
24,689

26,832

25,233

21,286

26,958

22,589

23,112

21,078










Net income
6,773

17,724

7,638

7,331

3,071

757

6,473

10,171

Net income per share
0.27

0.70

0.30

0.29

0.12

0.03

0.26

0.41

Adjusted base EBITDA
17,854

17,953

17,321

18,083

16,837

17,909

18,173

17,705

Adjusted base EBITDA per share
0.71

0.71

0.68

0.72

0.67

0.71

0.73

0.71

Operating margin
56
%
57
%
57
%
59
%
55
%
55
%
57
%
55
%









Summary balance sheet








Total assets
375,948

381,519

386,765

383,748

375,386

376,128

380,843

365,873

Total liabilities
79,705

83,711

108,106

106,477

103,972

89,264

83,584

74,654










Total AUM
25,398,159

25,141,561

25,377,189

23,432,661

21,044,252

21,944,675

23,679,354

20,443,088

Average AUM
25,518,250

25,679,214

23,892,335

22,323,075

21,420,015

23,388,568

21,646,082

20,229,119

⁽¹⁾ These amounts are included in the "Trailer, sub-advisor and fund expenses" line on the consolidated statements of operations.
⁽²⁾ The majority of the amount in Q2, 2023 relates to the receipt of shares on the realization of a previously unrecorded contingent asset from a historical acquisition.
⁽³⁾ The majority of the Q2, 2023 amount is accelerated compensation and other transition payments to the former CEO on the successful completion of the sale of Sprott Capital Partners ("SCP") during the second quarter.

Schedule 3 - EBITDA reconciliation


3 months ended
9 months ended
(in thousands $)
Sep. 30, 2023
Sep. 30, 2022
Sep. 30, 2023
Sep. 30, 2022





Net income for the period
6,773

3,071

32,135

10,301

Adjustments:




Interest expense
882

884

3,216

1,847

Provision for income taxes
(1,349
)
721

7,333

5,075

Depreciation and amortization
731

710

2,185

2,645

EBITDA
7,037

5,386

44,869

19,868






Other adjustments:




(Gain) loss on investments ⁽¹⁾
1,441

(45
)
1,433

9,312

Amortization of stock based compensation
4,294

3,633

12,022

10,911

Other (income) expenses ⁽²⁾
5,082

7,863

(5,044
)
13,369

Adjusted EBITDA
17,854

16,837

53,280

53,460






Other adjustments:




Carried interest and performance fees
-

-

(388
)
(2,046
)
Carried interest and performance fee payouts - internal
-

-

236

1,029

Carried interest and performance fee payouts - external
-

-

-

476

Adjusted base EBITDA
17,854

16,837

53,128

52,919

Operating margin ⁽³⁾
56
%
55
%
57
%
55
%
⁽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 $0.1 million severance, new hire accruals and other for the three months ended September 30, 2023 (three months ended September 30, 2022 - $1.3 million) and $5.4 million for the nine months ended September 30, 2023 (nine months ended September 30, 2022 - $4 million). This reconciliation line excludes income (loss) attributable to non-controlling interest of ($1.1) million for the three months ended September 30, 2023 (three months ended September 30, 2022 - (($0.8) million) and ($1) million for the nine months ended September 30, 2023 (nine months ended September 30, 2022 - (($0.9) 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 webcast will be held today, November 1, 2023 at 10:00 am ET to discuss the Company's financial results. To listen to the webcast, please register at https://edge.media-server.com/mmc/p/tcbp5zf3

Please note, analysts who cover the Company should register at: https://register.vevent.com/register/BId75d8bbee1c841edb6d80c073f330149

Non-IFRS Financial Measures

This press release includes financial terms (including AUM, net revenues, net commissions, net fees, expenses, adjusted base EBITDA, operating margins and net compensation) 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. 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 and non-IFRS and other financial measures are discussed below. For quantitative reconciliations of non-IFRS financial measures to their most directly comparable IFRS financial measures please see schedule 2 and schedule 3 of the "Supplemental financial information" section of this press release.

Net fees

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

Net commissions

Commissions, net of commission expenses (internal and external), arise primarily from purchases and sales of uranium in our exchange listed products segment and transaction-based service offerings by our broker dealers.

Net compensation

Net compensation excludes commission expenses paid to employees, other direct payouts to employees, carried interest and performance fee payouts to employees, which are all presented net of their related revenues in the MD&A, and severance, new hire accruals and other which are non-recurring.

EBITDA, adjusted EBITDA, adjusted base EBITDA and operating margins

EBITDA in its most basic form is defined as earnings before interest expense, income taxes, depreciation and amortization. EBITDA (or adjustments thereto) 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. Operating margins are a key indicator of a company’s profitability on a per dollar of revenue basis, and as such, is commonly used in the financial services sector by analysts, investors and management.

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) our confidence that our positioning and belief in our core investment themes of precious metals and energy transition investments will play out profitably for our clients and shareholders in the quarters and years ahead; 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: (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 under the heading "Critical Accounting Estimates, Judgments and Changes in Accounting Policies" in the Company’s MD&A for the period ended September 30, 2023. 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) those risks described under the heading "Risk Factors" in the Company’s annual information form dated February 23, 2023; and (xxviii) 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, 2023. 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 energy transition investments. We are specialists. Our in-depth knowledge, experience and relationships separate us from the generalists. Our investment strategies include Exchange Listed Products, Managed Equities and Private Strategies. Sprott has offices in Toronto, New York and Connecticut and the company’s common shares are listed on the New York Stock Exchange and the Toronto Stock Exchange under the symbol (SII). For more information, please visit www.sprott.com.

Investor contact information:

Glen Williams
Managing Partner
Investor and Institutional Client Relations;
Head of Corporate Communications
(416) 943-4394
gwilliams@sprott.com

Company Name:	Sprott Inc.
Stock Symbol:	SII
Market:	NYSE
Website:	sprott.com

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