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spk00: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to SPOT, Inc.' 's 2022 First Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star followed by zero for operator assistance at any time. As a reminder, this conference is being recorded today, May 6, 2022. On behalf of the speakers that follow, listeners are cautioned that today's presentation and the responses to questions may contain forward-looking statements within the meaning of the safe harbor provision of the Canadian Provincial Securities Law. Forward-looking statements involve risk and uncertainties and undue reliance should not be placed on such statements. Certain material factors or assumptions are implied in making forward-looking statements and actual results may differ materially from those expressed or implied in such statements. For additional information about factors that may cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements, Please consult the MD&A for the quarter and Sprott's other filings with the Canadian and U.S. securities regulators. I will now turn the conference over to Mr. Peter Groskopf. Please go ahead, Mr. Groskopf.
spk06: Thank you, Operator. Good morning, everyone, and thanks for joining us today. On the call with me today is Whitney George, the President of Sprott. Kevin Hibbert, our Chief Financial Officer, and John Champaglia, the Chief Executive Officer of Sprott Asset Management. Our 2022 first quarter results were released this morning and are available on our website, where you can also find the financial statements and MD&A. I'll start on slide four. Sprott started 2022 with the delivery of another very strong quarter. All of our divisions are performing well and our assets under management continue to climb to record highs. We recorded $1.4 billion in net sales during the quarter, matching a record set in Q1 of last year. The majority of our Q1 sales came from our physical trusts, with our uranium, gold and silver trusts all making meaningful contributions. In April, we closed our previously announced acquisition of the URNM Uranium Equities ETF. This transaction expanded our successful uranium franchise and added approximately $1B in AUM subsequent to the quarter end. The backdrop of the quarter was that precious metals performed well in Q1 before pulling back recently. The unfolding tragedy in the Ukraine has created demand for safe haven assets. We seem to be at an inflection point in the markets as the Fed embarks on an aggressive rate hike program. Investors are now rotating out of growth stocks, and that is also helping our area. With that, I'll turn it over to Kevin for a look at our financial results. Kevin?
spk02: Thanks, Peter, and good morning, everyone. I'll start on slide five, which provides a summary of our AUM as at March 31st, 2022. AUM was $23.7 billion at the end of the quarter, up $3.2 billion, or 16% from December 31st, 2021. As Peter mentioned, in the quarter we benefited from strong market value appreciation across our fund products, and strong inflows to our physical uranium, physical gold, and physical silver trusts. Slide six provides a brief look into our three-month earnings. Adjusted base EBITDA for the quarter was $18.2 million, up $3.6 million, or 24% from this same time last year. During the quarter, we benefited from the strong market value appreciation and inflows I described earlier, However, those increases were slightly offset by weaker mining equity origination activity in our brokerage segment. For more information on our revenues, expenses, and adjusted base EBITDA, you can refer to the supplemental information section of this presentation, as well as our MD&A filed earlier this morning. With that said, I'll pass things over to John. John?
spk05: Yeah, thanks, Kevin, and good morning, everybody. I'm very happy to report we had a Super strong quarter. I think it's fair to say that the world has rediscovered commodities and that there are growing concerns around the world that continue to linger about supply of commodities and commodity supply chains. For the quarter, we had over $3 billion increase in AUM, and that was almost evenly split between net inflows and market appreciation. And I think it's been very nice to see that our gold trust has returned back into strong sales mode after having a pretty soft 2021. Just for perspective, last year in our gold trust, we sold about $314 million for the entire calendar year. And so far in 2022, we've already hit $770 million. For our silver trust, it was a very quiet second half of last year, and we're now approaching about $200 million in net sales for 2022. For the Sprott Fizzle Uranium Trust, it remains very strong. It was a big seller in the quarter and continues to attract a lot of interest around the globe. As you can see from the bar charts, you can see very clear rotation as we move through different cycles for commodities where gold was kind of the star in 2020, silver the first half of 2021, and then more recently the uranium trust has been the top seller. Let's move to the next slide, please. So just to talk a little bit more about the Sprott Fusilier Uranium Trust, because I think it's a really good case study on how we've created tremendous value for our shareholders over the last year. When we acquired and reorganized Uranium Participation Corp on July 19th of last year, we had $630 million net asset value and approximately $18.1 million of U-308. You can see to May 5, the fund is now about $3 billion. and holds 55.5 million pounds. So it's been a very big success for us in terms of capital raising and deploying and buying more physical uranium. Even though we've had a small correction in the price of uranium in the last few weeks, along with most other commodities, stocks, and bond markets, it is important to point out that we started the year at about $2 billion in AUM, so we still have added 50%. to the starting point on January 1st. Excuse me. I just want to mention that about a week ago we put out an announcement that the SEC had rejected our initial listing application to file a spot on the New York Stock Exchange, and we've been very clear since day one that this was not a foregone conclusion, it would be a novel listing, and that there were a number of structural exemptions that we were asking for in order to secure Unfortunately, SEC does not feel the time is right to list such a vehicle, given some of the structural elements of the uranium market, as well as some of the specific design features of the trust itself. So it's something we will continue to monitor, but I think the most important point here is that our game plan won't change one bit, and what we've done so far has worked incredibly well. Next slide, please. And as Peter had mentioned, we continue to expand in the area of uranium specifically to uranium equities, which provide an incredible amount of operating leverage and torque to the overall rising uranium price. This puts us in a position where we believe we're now the largest manager of uranium investments in the world with approximately 4 billion AUM. And 12 months ago, we were essentially at zero. So it's been an incredible growth story for the company. um, we've seen a lot of interest in uranium in Europe. And one of the things that we've done this week is we've, we've created a clone of URNM and it started trading on London today, Germany yesterday, and we expect Italy to be in about a week. So we're interested in bringing the story to investors around the world because we see it as a, as a global story with growing interest across all investor segments. And with that, I'll pass it over to Whitney.
spk01: Oh, thank you, John. And, um, I continue to have an incredibly difficult hard act to follow after John to talk about managed equities for a moment. Absolute performance has improved, rebounded up until yesterday. Most of our products were in the black, which is quite unique relative to other markets. I think we're seeing the biggest rotation that I've seen since the year 2000 at the end of the dot-com boom away from growth and towards value strategies and hard assets generally. And obviously that's benefiting and there is obviously new interest in the kinds of products that we offer in our managed equities division. We had positive cash flow into our funds all three months in the first quarter and that continues. which is a nice change from the redemptions that we endured in the last two years since acquiring that business. And we're working on some new product ideas to leverage our expertise, our very large and talented and experienced team of portfolio managers in other parts of the mining world to explore opportunities in energy transition in general. after the follow-on with the incredible success that John and the team have had with the uranium markets. So we're very excited about our prospects in the future, and on a relative basis, it hasn't felt this good in decades.
spk06: Peter, back to you. Thanks, Whitney. I'll reiterate that both these gentlemen are very hard acts to follow with those growing businesses, so Turning to slide number 11 to look at our private strategies. Our combined private strategies AUM was $1.4 billion as of March 31. We had strong originations in the quarter from both the lending and streaming teams. A couple of examples with lending providing the first tranche of $185 million U.S. project debt facility to Marathon Gold. while the streaming team partnered with the Ontario Teachers Pension Plan on a $225 million convertible note into Seabridge Gold. Looking ahead, we do expect to continue to expand the lending business in this division in 2022 and 2023 with the launch of new fund strategies. Turning over to slide 12. for a brief look at the brokerage segment. Both of our brokerage businesses are performing well, generating reasonable revenues and good returns on capital. The Canadian platform is still providing strong results, but activity levels slowed a bit in the quarter with a slightly more difficult environment for junior miners. Our U.S. brokerage continues to produce strong product sales and has converted the majority of its assets under administration to assets under management, which is positive for our organization as a whole and has helped us on the equity product sales front. And then moving over to slide 13 for some final comments. It's been a great start to the year. We're continuing to deliver strong AUM growth and great financial results despite market volatility. We are now addressing two large target markets as both precious metals and specialty minerals are growing as alternative investment areas. We are rapidly expanding our client base in the growing energy transition minerals business. And increased investment into our sales and marketing efforts is now paying off and translating into accelerating growth and sales in all businesses. We are now quite focused on organic growth, and we have a very busy calendar ahead of us with multiple new product launches planned for 2022. And with that, it concludes our remarks for today's call, and I'll now turn it back to the operator for some Q&A. Operator?
spk00: Thank you, Mr. Peter. Ladies and gentlemen, we will now conduct the question and answer session. As a reminder, if you would like to ask a question, simply press star 1. Again, press star 1 to be on the Q&A queue. Our first question is from Geoff Kwan of RBC Capital Markets. Your line is open.
spk03: Hi, good morning. I think you've talked in the past about the growth opportunity penetrating distribution channels like family offices and the like. Just wondering if you're able to give an update on progress on that front.
spk05: Yeah. Hi, Jeff. It's John. Good morning. Yeah, we've seen tremendous engagement from family offices around the world, specifically to the Sprott Visual Uranium Trust in the last eight or nine months. We seem to have a whole bunch of family offices in Europe, Singapore, west coast of the U.S., east coast of the U.S. that all seem to be uranium bowls. So it is growing. There's also another growing segment specifically with hedge funds. We've spoken to countless hedge funds around the world that seem to be very focused on the energy transition trade. and I think this has been very positive for SPOT, and I think it's also very interesting to us that this thesis is starting to become better understood, and clearly the events post-Feb 24 have really highlighted to the world how important energy security will be, and we think this is a similar parallel situation that we saw in 1973 when we had the oil shock embargo, And the world kind of woke up and said, you know, we need to make sure we've got security of supply and energy independence. We think a similar narrative is going to impact energy policy starting in Europe, and it's clearly starting to happen in the United States as well. And a lot of these family offices and hedge funds, I would say, are kind of the front end of these inflection points for some of these commodity ideas right now.
spk03: Okay, that's helpful. Thank you. Peter, on the lending and the streaming strategies, the origination pipeline, do you have any kind of insight you have on what you think might play up for the rest of the year?
spk06: It's very hard to predict individual closings. I'm confident that because of the way the clients are now coming into that business, there is an increasing proportion that is paying commitment fees, so that counts for assets under management. I'm reasonably confident the area is just going to keep growing, and it's a slow and fairly steady growth. It's very difficult to say when the big closings happen and larger AUM amounts are triggered. You know, my target would be to continue to have a growing business on both sides there well into 2023.
spk03: Okay, and just my last question, Kevin. how are you expecting kind of the base compensation expense to play out for 2022? So, you know, excluding stuff like commission expense, performance fee payouts, LTIP, severance, those sorts of things. Because I think that number, like kind of on the base side, would have been in and around $45 million in 2021. Hey, Jeff.
spk02: So, good question. I would say the best approach for you to take is – to look at the net compensation expense ratio. Since 2018, the total comp for the company is extremely tightly correlated to our performance metrics, and the key drivers would be the net revenues, the net commissions, and our operating margins. So if you take the net comp expense that you see in the eight-quarter role, and you simply divide it by the net fees plus net commissions line, I would suggest you then take that percentage and just simply extrapolate it across whatever your model is spitting out for those management fee and commissions, and you should get a pretty good run rate. Generally speaking, I think throughout the year, we should be comfortably under 50%. in terms of that ratio, and so that should give you a pretty good indicator. And I'd suggest you do that, Jeff, mainly because the LTIP number is a bit noisy now and will be for the next few years relative to what you saw in the past, mainly because we had a lot of stock that we held on to that we were going to be giving to employees and amortizing over the next few years, but they're at much, much higher levels marks just given grant data counting, as you can imagine, based on what our stock did over the last five years. So you can't do a bottom-up approach anymore. You're going to have to use that ratio and just apply it against your revenues that you're modeling out. Okay. No, that's helpful. Thank you. No problem.
spk00: Thank you. Once again, I'd like to remind everyone, if you would like to ask a question... Please press star and the number one on your touch-tone cell phone. Again, please press the star one to be on the queue. And our next question is from Graham Riding of TD Securities. Please go ahead.
spk04: Hi, good morning. Can you hear me okay?
spk05: Yes, good morning, Graham.
spk04: Great. I actually forgot to queue up there, so I apologize. Just to follow up, Kevin, on your comments there, my maths suggested your net comp ratio this quarter was about 49%, and it looks like your run rate over the last sort of two years has been closer to 41%. Am I looking at that correctly? And then is the differential there, is that the LTIP? Was that the big moving piece this quarter that drove that higher?
spk02: Yeah, I'd say yes, you're absolutely right. That's creating that noise, just given that mark. But the run rate over the past two years is more like 44%, I think. So after we get off the horn, I'll send you those numbers going back over the last two years.
spk04: Okay, that helps. Peter, you make reference to... the energy transition franchise, just any color on what else that franchise could evolve into beyond uranium?
spk06: Well, I would pass it on to John or Whitney actually to answer that and maybe give you some context. Guys?
spk05: Yeah, sure. Hey, Graham. Yeah, look, it's broad. There are numerous elements that form the backbone of it, whether you're looking at – you know, basic things like steel are right out to incredibly rare elements in the rare earth spectrum that you need for a number of different applications, whether that's electric vehicles or magnets for wind turbines, et cetera. So, you know, we are believers that there will be an energy transition that does not mean that we will move 100% away from fossil fuels because the reality is all of our systems... infrastructure have been developed around fossil fuels largely for the last 125 years so you just can't move away from that overnight and obviously when you try to do that you hit speed bumps like Europe has hit in the last 12 months but this whole transition is going to continue it's going to require massive amounts of infrastructure and capital and also it's coming at a time when there's been underinvestment in a lot of these different underlying raw material inputs And so we're looking at things right across the spectrum, whether those are elements for battery materials, increasing electrification, decarbonization. We think these are big secular themes that will require massive amounts of capital going out to 2050 in terms of lining that up with different climate change objectives and policies. So yeah, we're looking at everything in that space, whether those are on the equity side or potentially on the physical commodity side.
spk01: I'd just add to John's comments that last year was quite a wake-up call for the world. Before the Ukrainian tragedy, energy prices everywhere were rising rapidly, and the true cost of energy transition made itself apparent to everybody. In addition, as a result of COVID and other policies, the whole world's gone from a just-in-time inventory model to a just-in-case, and that makes ownership of physical assets very, very attractive. So I think we're very well positioned to help our clients capitalize on that.
spk04: So when you think about your energy industry,
spk05: transition franchise are you right right now is it uranium and silver that would fall into that or you know what's the percentage of your aum in your business right now that uh you know fits with that strategy yeah the uranium clearly fits you know so three billion um right now between the uh sorry four billion between the physical and that related uh miners and um Our dollars in silver, I don't have the number in front of me, but it's probably closer to $5 or $5.5 billion. Silver is a key element for solar panels. 10% of all the silver produced in the world is used as an input for solar panels, so we think that's a key element to continue that growth. and clearly there's lots of other materials that are going to be needed, whether it's copper for EVs or electrification, right down to all the different elements that go into the various battery chemistries for electric vehicles and other shipping.
spk06: I would add, Graham, that we have on the brokerage side, because we can get to things a little more quickly there, We've had increasing proportion of revenues that are being driven by nickel, rare earths, graphite, vanadium, copper, zinc. So we've already seen it enter the mix on the brokerage sides in terms of their investments.
spk01: I'd add there's been a lot of investment in energy transition, but it's all been in downstream technology-like plays, and very little has been invested in the upstream assets that are the starting point for all of this transition. So it's a very underserved, underinvested part of the market, as John mentioned, with lots of opportunities in front of us.
spk04: Okay. Perfect. That's good color. And then my last question, just be with the FCC rejecting that spot for the, for the NYSE listing. I guess my first question is why is there no redemption feature with that product? And then my second question is just, you know, does this reduce the growth outlook for that product or can you offset and compensate elsewhere?
spk05: Yeah, sure. So there's no redemption feature, obviously, because trying to do a redemption on physical uranium has severe limitations in terms of how do you do that, who would even be eligible to take physical title to uranium. It's very different than us shipping a bar of gold or a bar of silver to somebody. So there are practical limitations to that. We also don't think that having a cash redemption option will serve investors over the long run. It creates it creates disruption for the trust, friction costs, as well as tax implications. So the trust has operated very well since its inception in July without one, and the fund for the most part is traded at or above its NAV. We don't think it will impede its growth whatsoever. Most of the growth has come from institutional investors, and institutional investors have no problem whatsoever accessing the tickers on the Toronto Stock Exchange in both U.S. dollars and Canadian dollars. And we've also uplisted the trust on the OTC market from pink when we started all the way up to OTC best market. So that's what we've done to basically cover as much as we were able to in terms of access to the way people want to trade, what currency, and which local exchange.
spk04: Okay, great. That's it for me. Thank you.
spk00: Thank you. And I'm not showing any more questions on the queue. And with that, I would like to turn over the call to Mr. Peter Groskopp for some closing remarks.
spk06: Well, thank you, everyone, for participating in this call. We appreciate your interest and support, and we look forward to speaking with you again after our Q2 results. Have a good weekend.
spk00: And that concludes today's conference call. Thank you, everyone, for participating. You may now log off and disconnect. Thank you.
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