Sprott Inc. (SII) Earnings Call Transcript

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Sprott Inc.'s 2026 Third Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, November 4, 2026. On behalf of the speakers that follow, listeners are cautioned that today's presentation and the responses to questions may contain forward-looking information and forward-looking statements within the meaning of applicable Canadian and U.S. securities laws. Forward-looking statements involve risks 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. Whitney George. Please go ahead, Mr. George.

Thank you, operator, and good morning, everyone, and thanks for joining us today. must be an especially busy day for everyone as they digest the results of last night's elections here in the States. On the call with me today is our CFO and Co-COO, Kevin Hibbert; and John Chipavio, CEO of Sprott Asset Management. Our 2026 third 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 4. To review the third quarter year-to-date highlights, it may seem obvious today, but there are currently a lot of external factors distracting investors from market fundamentals. These external factors were the story of the third quarter. The world is engulfed in 2 major conflicts without a clear path to closure in either of them. During the third quarter, the war in Iran reescalated into a broader Middle Eastern conflict. Energy and other commodity prices continued to climb and reserve stockpiles are rapidly depleting. The result in inflationary expectations drove fixed income markets to their worst quarterly performance in decades. U.S. tenured treasuries declined by nearly 8% in the quarter, with yields at levels not seen in 2 decades. This, despite the best efforts of the U.S. Treasury Department and the Federal Reserve to convince markets take control inflation and forced rates back down. Federal Reserve Chairman, Kevin Warsh, delivered a heartiest speech in August in Jackson Hole. Then in September, the Federal Reserve raised rates 25 basis points more to preserve credibility than to have an economic impact. For his part, Treasury Secretary Bessant directed an intervention in the currency markets to prevent Japan from selling U.S. treasuries to defend its own currency. Next investment raised the treasury's commitment to buy back long-dated issues. And finally, he declared I am the house in an effort to scare short-term traders into covering their short positions. None of these moves had more than a momentary impact on halting the rise in rates. All of this activity contributed to a highly volatile quarter for our core investment themes of precious metals and critical materials. Our assets under management increased by $1.8 billion during the quarter to $57.3 billion, and we reported $200 million in net redemptions due largely to redemptions in our physical trust. We continue to benefit on the other hand from the expansion of our critical materials strategies, which performed well during the period, delivering $200 million in net sales. Our financial results were strong despite the choppy markets. Adjusted EBITDA was $46 million, up from $31.9 million in the third quarter of 2025. And finally, as Kevin will discuss further in a moment, yesterday, our Board of Directors announced a 25% increase in our regular quarterly dividend. With that, I'll pass it over to Kevin for a review of our financial results. Kevin?

Thanks, Whitney, and good morning, everyone. I'll start on Slide 5, which provides a summary of our historical AUM finished the quarter at $57.3 billion, up 3% from $55.6 billion as of June 30 and was down 4% from $59.6 billion as at September 30, 2025. On a 3 months ended basis, our AUM was positively impacted by market value appreciation across the majority of our fund products. On a 9-month ended basis, our AUM was negatively impacted by market value depreciation and net outflows from our precious metals products partially offset by positive net inflows to our Critical Materials products. Importantly, average AUM for the quarter was $58.8 billion, up $16.5 billion or 39% from $42.3 billion this time last year. On a year-to-date basis, average AUM was $64 billion up $26.3 billion or 70% from $37.7 billion this time last year. Our average AUM performance was positively impacted by a combination of net inflows and market value appreciation across the majority of our fund products since the third quarter of last year, which more than offset the impact of year-to-date pullbacks in precious metals valuations. Slide 6 provides a brief look at our 3- and 9-month earnings. Net income this quarter was $22 million, up $8.8 million or 67% from $13.2 million over the same 3-month period last year. On a year-to-date basis, net income was $85.5 million, up $46.9 million from $38.6 million this time last year. Our 3 and 9 months ended results were primarily due to higher average AUM in our exchange-listed products and managed equity segment. With our 9 months ended results in particular, also benefiting from carried interest crystallization in our Private strategy segment in the first quarter of the year. Adjusted EBITDA, which excludes quarterly volatility from items like cash settled stock-based compensation and income carried interest and performance fee crystallization was $46 million for the quarter, up $14.1 million or 44% from $31.9 million over the same 3-month period last year. and it was $154.7 million on a year-to-date basis, up $75.4 million or 95% from $79.3 million this time last year. Adjusted EBITDA increased in the quarter and on a 9 months ended basis due to higher average AUM attributable to a combination of net inflows and market value appreciation across a majority of our fund products since the third quarter of last year, which again more than offset the impact of year-to-date pullbacks in precious metals valuations. Turning now to Slide 7. Over the past 5 years, we have generated meaningful operating leverage with AUM growing by 180%, adjusted EBITDA margin expanding from 53% to 71% and cash and equivalents surpassing $200 million as at September 30 of this year and no debt on the balance sheet. And finally, on Slide 8. You'll see here, we closed the quarter with a strong cash position, announcing a 25% dividend increase, making this our third consecutive year of double-digit dividend growth. We also continue to repurchase shares opportunistically with total year-to-date buybacks approaching 1% of total outstanding shares. Moving forward, we continue to pursue opportunities to reinvest in the business, both organically and we're prudent inorganically to further support earnings and free cash flow growth for our shareholders. For more information on our revenues, expenses, net income, adjusted EBITDA and balance sheet metrics, you can refer to the supplemental information section of this presentation. as well as our quarterly MD&A and financial statements filed earlier this morning. With that said, I'll pass things over to John.

Thanks, Kevin, and good morning to everybody. On Slide 9. Assets under management and our physical trusts increased slightly in Q3, helped by a stronger gold price. -- uranium and copper have been less volatile as both of these strategic energy metals are experiencing tight physical market conditions -- the Iranian market continues to be in a structural supply deficit, while supply disruptions at a growing number of copper mines have taken about 5% of global production off-line. In contrast, precious metals were under pressure due to liquidity inflation and interest rate-related selling. Silver has been the hardest hit as import restrictions and an increase in the import duty rate in India has removed a significant physical buyer from the market. These measures implemented in May were designed to protect the value of the rupee and it's unclear as to when these will be relaxed. Moving to Slide 10. The weakness in silver translated into redemptions for physical silver trust, which weighed on our overall quarterly results of $421 million of outflows. Despite the redemptions in PSLV, we continue to fare better than our North American competitors, increasing our market share of AUM on a year-to-date basis. Our physical gold trust was a bright spot with $380 million in net flows for the quarter. Moving to Slide 11. AUM was up slightly in the quarter during a very volatile period of shifting market sentiment and market noise, AUM ended the quarter at $5.6 billion. On Slide 12. The Flows fared better in the quarter with $253 million in net additions. Investors took advantage of market weakness in uranium stocks to add to their positions. We also continue to experience positive flows in our rare earths ex China ETFs -- despite the market noise, investors are focusing on the longer-term fundamentals for critical materials and the need to reshore. China dominates the rare earth supply chain and has repeatedly demonstrated its willingness to weaponize their position against rivals during disputes. Uranium demand is expected to increase meaningfully over the coming years with 79 reactors under construction and over 100 being planned. This would be in addition to the 439 reactors currently operating, which are increasingly planning for life extensions and uprates. On the uranium supply side, capital is flowing to build new greenfield projects, but they are still several years away from first production, which will keep the market and the supply deficit until the early 2030s. My final comments will focus on the diversification results we have achieved in our business over the past few years: diversification by metal type, product wrapper, geography and investor tech. This was not accidental. This was our strategy and it's paying huge dividends. In my almost 17 years at Sprott, our business has never been as metal and product diverse, global in reach and institutional in nature. 5 years ago, we had no exposure to uranium. We now have over $10 billion under management, while our assets and other critical materials continue to scale. Each metal has its own drivers and is positioned at a different point in its respective life cycle. Having multiple metals in our product suite across various geographies as strength in our business, enhance our resiliency and positioned us to capitalize on the renewed and growing interest in metals and mining. And I'll now pass it over to Whitney.

Thank you, John. We'll move now to Slide 13 for a look at our managed equities segment, our managed equities AUM rose modestly in the third quarter, supported by strong market gains in August before a sharp selloff in September. Slide 14, you can see that we reported net redemptions during the quarter as flows to our actively managed ETFs slowed and our flagship mutual fund continues to experience small redemptions as long-term investors take profits. I'll now turn to private strategies on Slide 15. Our Private Strategies AUM was flat for the quarter at $2 billion as of September 30, '26 and our private strategies are well positioned for future growth, supported by favorable market tailwinds and a strong track record. We are also seeing increased demand from both borrowers and investors as the market evolves towards less dilutive financing solutions designed to preserve shareholder value and reduce long-term impacts on capital structures. I'll now turn to Slide 16 for some closing remarks. As I wrote in my quarterly letter, amid all the noise, we continue to do all we can to create value for our clients and shareholders. Our marketing team produces a tremendous volume of best-in-class thought leadership material, and our client-facing teams are seeing increased activity from institutions and family offices. Our key accounts team's efforts to forge relationships and gain shelf space for our products on increasingly larger platforms are paying off. We're beginning to see the impact of our technology investments on productivity, and we are evaluating new ways to become more efficient through the use of artificial intelligence. Our efforts are being recognized. In October, Sprott was named 1 of Fortune magazine's 100 fastest-growing companies. Now it's interesting to note that we have a lot of company among others in the mining industry. Looking ahead, we remain confident in our core positioning and the long-term outlook for precious metals and critical materials. In the U.S. and internationally, there is little political will to rein in government spending or take the difficult steps required to bring fiscal deficits under control. Ultimately, this will benefit gold and silver and the related equities. We expect geopolitical tensions to persist, creating increased competition for access to critical materials and renewed focus on incentivizing domestic production. Our financial position remains strong and free cash flow generation is accelerating. Our disciplined capital allocation framework is focused on growing the business through seeding new funds and strategic acquisitions. and we will also continue to return capital to shareholders through incremental dividend increases and share buybacks. That concludes our remarks for today's call, and I'll now turn it over to the operator for some Q&A. Operator?

[Operator Instructions] Your first question comes from Etienne with BMO Capital Markets.

In the shareholder letter, with me, you note the potential to expand the ETF product suite in Critical Materials. Now you've already been quite active on this front over the past year. So I'm curious, what are some best practices that you've learned during this time and what do you look for in a new ETF launch?

Well, whatever we do will stay within the critical materials suite of products. There are a couple of gaps that would give investors solutions. Again, more recently, we've launched some actively managed ETFs. That's a growing part of the market, we'll always be thinking about that. Additionally, I think we have a really interesting idea with our rarest ex China, the ex China part being the novel part -- and so we're always -- nothing is imminent, but we're always thinking about new ways to deliver the best possible product suite for our investors. .

Okay. And switching to capital allocation. So the cash position continues to build. And even with the increase in the dividend, the payout ratio remains quite conservative here. So with me, where do you see the best use of capital going forward given the firm is quite selective on acquisitions.

Well, there are still some things -- legacy things out there on 1 hand. On the other hand, we are in the marketing process for our fourth lending fund, where we will make a co-investment a 25% dividend increase with declining AUM is, I think, fairly strong. It's not the 30% that we did or 33% last year. But Clearly, the Board is confident in the resilience of our business. And again, we bought more stock back in actually subsequent to the end of the quarter than we have, I think, in our history. So markets we expect will continue to be volatile. We're not immune from swings in the market, and we'll continue to be opportunistic on that front.

Have you seen more inbounds from third parties on potential partnerships on the distribution side of things?

Everything has gone very quiet in the last 3 months. Again, people really are kind of frozen a little bit with this Iran conflict going on, maybe the election being behind us will clear some up. We are exploring some modest distribution partnerships in Asia. But nothing that's particularly in nature. We are making very good progress in Europe with our partnership with an ETF. And we continue to be open, whether it's through distribution partnerships or local listings, all those things are kind of up in the air but on the table.

Your next question comes from Bart with RBC Capital Markets.

Whitney, you talked about the free cash flow generation is actually accelerating, which is a pretty positive statement just given the choppy macro kind of environment we've had this year. So could you unpack that comment a little bit in terms of what is driving that free cash flow acceleration given the backdrop.

Well, first of all, we are getting operating leverage on our fixed cost Secondly, we have a highly variable compensation system that is time to deliver cash flow torque -- so you'll see that our net revenues are rising, but compensation is not keeping pace. So we're obviously getting -- and that's really in part because every Sprott employee is a shareholder. And so it's not as if they're losing out or we have to compensate them, it's -- they're aligned. So I think those are the big factors. I mean, obviously, compensations are dates expense. And to the extent that we can get some leverage, we'll continue to do that. On the flip side, we would not expect compensation. We would expect compensation to not decline as much -- or sorry, decline as much as net revenue. So I mean, I think we're going to both deliver operating leverage as we grow, but we will defend that in the rough spots.

Maybe a maybe Bart, just to add to that. I think Whitney summarized that well. But I'd also just sort of keep in mind that a big -- another big driver of our earnings as well as our free cash flow is the fact that, obviously, we get paid on the average AUM. And so notwithstanding the tougher environment we've been seeing of late, it's really the averages that kind of really drive our free cash flow build secondarily, obviously, to the operating leverage that Whitney touched on, but it's also another very important factor. . Just because it's not as if the average moves in lockstep with the Sprott. So we're able to capture the daily pricing of the vast majority of our products when they're higher and continue to, as a result, be able to outperform on earnings and free cash flow even as you start seeing the pullbacks in the pricing. So it's really the ability to harvest that cash flow historically, as we move forward in times like this that enables us to continue to still have the free cash flow kind of outlook that we that we have internally.

Got it. That's very helpful. And then just a follow-up, us AI I guess, related as well. You mentioned the impact of technology investments on productivity and use AI. So maybe could you give us a bit of examples? Or is it translating to dollar saves, et cetera, just how you're leveraging that component within the business.