.2

 

Management’s Discussion and Analysis

 

Years ended December 31, 2020 and 2019

 

1

 

Forward looking statements

 

Certain statements in this Management’s Discussion & Analysis (“MD&A”), and in particular the “Business Performance Highlights” section and “Outlook” section, contain forward-looking information and forward-looking statements (collectively referred to herein as the “Forward-Looking Statements”) within the meaning of applicable Canadian and U.S. securities laws. The use of any of the words “expect”, “anticipate”, “continue”, “estimate”, “may”, “will”, “project”, “should”, “believe”, “plans”, “intends” and similar expressions are intended to identify Forward-Looking Statements. In particular, but without limiting the forgoing, this MD&A contains Forward-Looking Statements pertaining to: (i) the belief that distortion in financial asset valuations is now so extreme that there has never been a stronger argument for investors to hold non-correlated assets, such as precious metals and their related equities, in their portfolios; (ii) the belief that there will be a rotation of investor capital into precious metal equities; (iii) the commitment to extend the company’s reach by increasing our presence in key markets such as Europe and Asia; (iv) the expectation of expanding the client base with the launch of complementary new investment strategies in 2021; (v) the belief that 2021 will be a great year for the company, as it continues to strive to be the world’s leading precious metals investment firm; (vi) continued strength in global precious metals pricing and mining equities markets throughout 2021; (vii) anticipation of flat-to-lower AUM in our lending segment as capital calls into new lending LPs are offset by capital distributions from older lending LPs that will be wound up later in the year, including the expectation of crystallized material carried interest gains from those LPs; (viii) anticipation of mining sector equity origination and M&A activity to remain constructive in 2021; (ix) at a consolidated level, the belief that the aforementioned segment level results will lead to another strong year for Sprott Inc. as far as continued earnings growth and strong operating margins; (x) expectation of the effects of COVID-19, and in particular, world government responses thereto via fiscal and monetary policy, will continue to be highly constructive to precious metals markets; and (xi) 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; and (iv) those assumptions disclosed herein under the heading “Critical Accounting Estimates, Judgments and Changes in Accounting Policies”. Actual results, performance or achievements could vary materially from those expressed or implied by the Forward-Looking Statements should assumptions underlying the Forward-Looking Statements prove incorrect or should one or more risks or other factors materialize, including: (i) difficult market conditions; (ii) poor investment performance; (iii) failure to continue to retain and attract quality staff; (iv) employee errors or misconduct resulting in regulatory sanctions or reputational harm; (v) performance fee fluctuations; (vi) a business segment or another counterparty failing to pay its financial obligation; (vii) failure of the Company to meet its demand for cash or fund obligations as they come due; (viii) changes in the investment management industry; (ix) failure to implement effective information security policies, procedures and capabilities; (x) lack of investment opportunities; (xi) risks related to regulatory compliance; (xii) failure to manage risks appropriately; (xiii) failure to deal appropriately with conflicts of interest; (xiv) competitive pressures; (xv) corporate growth which may be difficult to sustain and may place significant demands on existing administrative, operational and financial resources; (xvi) failure to comply with privacy laws; (xvii) failure to successfully implement succession planning; (xviii) foreign exchange risk relating to the relative value of the U.S. dollar; (xix) litigation risk; (xx) failure to develop effective business resiliency plans; (xxi) failure to obtain or maintain sufficient insurance coverage on favourable economic terms; (xxii) historical financial information being not necessarily indicative of future performance; (xxiii) the market price of common shares of the Company may fluctuate widely and rapidly; (xxiv) risks relating to the Company’s investment products; (xxv) risks relating to the Company’s proprietary investments; (xxvi) risks relating to the Company’s lending business; (xxvii) risks relating to the Company’s brokerage business; (xxviii) those risks described under the heading “Risk Factors” in the Company’s annual information form dated February 25, 2021; and (xxix) those risks described under the headings “Managing Risk: Financial” and “Managing Risk: Non-Financial” in this MD&A. In addition, the payment of dividends is not guaranteed and the amount and timing of any dividends payable by the Company will be at the discretion of the Board of Directors of the Company and will be established on the basis of the Company’s earnings, the satisfaction of solvency tests imposed by applicable corporate law for the declaration and payment of dividends, and other relevant factors. The Forward-Looking Statements speak only as of the date hereof, unless otherwise specifically noted, and the Company does not assume any obligation to publicly update any Forward-Looking Statements, whether as a result of new information, future events or otherwise, except as may be expressly required by applicable securities laws.

 

Management’s discussion and analysis

 

This MD&A of financial condition and results of operations, dated February 25, 2021, presents an analysis of the consolidated financial condition of the Company and its subsidiaries as at December 31, 2020, compared with December 31, 2019, and the consolidated results of operations for the three and twelve months ended December 31, 2020, compared with the three and twelve months ended December 31, 2019. The board of directors approved this MD&A on February 25, 2021. All note references in this MD&A are to the notes to the Company’s December 31, 2020 audited annual consolidated financial statements (“annual financial statements”), unless otherwise noted. The Company was incorporated under the Business Corporations Act (Ontario) on February 13, 2008.

 

Presentation of financial information

 

The financial statements, including the required comparative information, have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). Financial results, including related historical comparatives contained in this MD&A, unless otherwise specified herein, are based on the annual financial statements. While the Company’s functional currency is the Canadian dollar, its presentation currency has changed to US dollars effective January 1, 2020, with the prior period figures restated accordingly. We believe the US dollar better reflects the Company’s consolidated financial position and results of operations given the materiality of revenues denominated in US dollars that further increased in 2020 with the January 17, 2020 close of the Tocqueville Asset Management gold strategies acquisition (the “Acquisition”). Accordingly, all dollar references in this MD&A are in US dollars, unless otherwise specified. The use of the term “prior period” refers to the three and twelve months ended December 31, 2019.

 

2

 

Key performance indicators (non-IFRS financial measures)

 

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

 

Assets under management

 

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

 

Net inflows

 

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

 

Net sales

 

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

 

Capital calls and commitments

 

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

 

Net fees

 

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

 

Net commissions

 

Commissions, net of commission expenses, arise primarily from the transaction based service offerings of our brokerage segment.

 

Net compensation

 

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

 

Total shareholder return

 

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

 

Return on capital

 

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

 

3

 

EBITDA, adjusted EBITDA, adjusted base EBITDA and operating margin

 

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

 

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

 

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

 

		3 months ended				12 months ended
(in thousands $)		Dec. 31, 2020		Dec. 31, 2019		Dec. 31, 2020		Dec. 31, 2019
Net income for the periods		6,720		1,445		26,978		10,209
Adjustments:
Interest expense		331		269		1,237		1,036
Provision for income taxes		2,561		948		7,684		2,741
Depreciation and amortization		1,023		1,254		4,052		3,795
EBITDA		10,635		3,916		39,951		17,781
Other adjustments:
(Gain) loss on investments (1)		3,089		1,422		(5,109	)	1,055
Non-cash stock-based compensation		1,307		648		2,835		3,863
Other expenses (2)		4,266		2,274		11,035		7,123
Adjusted EBITDA		19,297		8,260		48,712		29,822
Other adjustments:
Carried interest and performance fees		(10,075	)	(1,811	)	(10,075	)	(1,811	)
Carried interest and performance fee related expenses		5,529		992		5,529		992
Adjusted base EBITDA		14,751		7,441		44,166		29,003
Operating margin (3)		51	%	38	%	49	%	38	%

 

(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 annual financial statements, Other expenses also include severance and new hire accruals of $0.1 million for the 3 months ended (3 months ended December 31, 2019 - $0.2 million) and $1.3 million for the 12 months ended (12 months ended December 31, 2019 - $1.1 million) and excludes income attributable to non-controlling interests of $0.3 million for the 3 months ended (3 months ended December 31, 2019 - $Nil) and $0.8 million for the 12 months ended (12 months ended December 31, 2019 - $Nil) (see Other expenses in Note 5 of the financial statements).

 

(3)           Calculated as adjusted base EBITDA inclusive of depreciation and amortization, and excluding income related to legacy balance sheet loans. This figure is then divided by revenues before gains (losses) on investments, net of direct costs as applicable.

 

4

 

Business overview

 

Our reportable operating segments are as follows:

 

 

Exchange listed products

 

·               The Company’s closed-end physical trusts and exchange traded funds (“ETFs”).

 

Managed equities

 

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

 

Lending

 

·               The Company’s lending and streaming activities occur through limited partnership vehicles (“lending LPs”).

 

Brokerage

 

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

 

Corporate

 

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

 

All other segments

 

·               Contains all non-reportable segments as per IFRS 8, Operating Segments (“IFRS 8”). See Note 14 of the annual financial statements for further details.

 

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

 

5

 

Performance highlights

 

Financial highlights

 

 

Environmental, Social, Governance highlights

 

Sprott is committed to incorporating ESG matters into our investment decision making and active ownership practices pursuant to the United Nations Principles for Responsible Investment. See “Environmental, social and governance” in the 2020 Annual Information Form for additional details. Below are additional ESG related highlights pertaining to the 2020 fiscal year.

 

Environmental

 

·                     Donation to American Australian Association’s Bush Fire Relief Fund

·                     Closed on the acquisition of U.S clean energy fund assets (Brookfield Renewable Partners: 50.1%; Sprott Korea led consortium: 49.9%)

 

Social

 

·                     Women and BIPOC make up 30%+ of board and senior leadership

·                     Signed 2020 BlackNorth initiative (along with over 200 public and private companies) to address workplace injustice against BIPOC in Canada

·                     Donation to various COVID-19 relief projects (including Toronto General Hospital and YMCA)

·                     Launched Sprott scholarship for women in finance at Carlton University

·                     Launched mandatory company wide unconscious bias training

 

Governance

 

·                     Engaged Global Governance Advisors for a 2021 project to assist in further enhancing our governance practices as we grow and expand our reach into international regulatory environments in the U.S, Europe and Asia

·                     Our compensation practices continue to produce a mix of pay reflecting the objectives of our shareholders that management be compensated more towards variable at-risk pay (annual incentive plan; “AIP”) and long-term stock incentives (long-term incentive plan; “LTIP”)

·                     Hired an independent audit firm to conduct a 2021 review of our cybersecurity framework against the best practices noted in the National Institute of Standards & Technology Cybersecurity Framework (“NIST Framework”)

 

6

 

Outlook

 

Our businesses

 

We anticipate continued strength in global precious metals and mining equities markets throughout 2021, which benefits our exchange listed products and managed equities segments. However, we anticipate flat-to-lower AUM in our lending segment as capital calls into new lending LPs are offset by capital distributions from older lending LPs that will be wound up later in the year (at which time, we would expect to crystallize material carried interest gains from those LPs). On the transactions side of the business, we anticipate mining sector equity origination and M&A activity to remain constructive in 2021, which benefits our brokerage segment.

 

At a consolidated level, we believe the aforementioned segment level results will lead to another strong year for Sprott Inc. in terms of continued earnings growth and strong operating margins.

 

Acquisition update

 

On January 17, 2020, the Company closed on the acquisition of Tocqueville Asset Management’s gold fund strategies. The Acquisition cost was $15 million and contingent consideration up to $35 million was payable over the two years following the close of the Acquisition, subject to the achievement of certain financial performance conditions.

 

Subsequent to year-end, Sprott successfully negotiated an amendment to the original terms of the purchase agreement. In lieu of any contingent consideration entitlement for the 2020 and 2021 fiscal years, the vendor accepted a final payment from Sprott of $30 million ($27 million in cash and $3 million in Sprott Inc. common shares). This enabled Sprott to lock-in the total acquisition price and return on investment economics going into 2021 and further enabled Sprott to retain the full benefits of any additional increase in AUM expected over 2021.

 

COVID-19 update

 

The changing economic and market climate as a result of COVID-19 has led to the Company implementing its business continuity plan. Our portfolio managers, brokerage professionals, enterprise shared services teams and key outsource service providers are fully operational. While the exact impacts of COVID-19 over the short and long-term are undeterminable at the date of this report, management believes the effects of COVID-19 we have witnessed thus far, and in particular, world government responses thereto via fiscal and monetary policy, will continue to be highly constructive to precious metals markets as we progress into 2021.

 

7

 

Summary financial information

 

(In thousands $)		Q4 2020		Q3 2020		Q2 2020		Q1 2020		Q4 2019		Q3 2019		Q2 2019		Q1 2019
Summary income statements
Management fees		22,032		19,934		15,825		15,125		10,685		10,577		9,962		10,195
Carried interest and performance fees		10,075		—		—		—		1,811		—		—		—
less: Trailer and sub-advisor fees		371		291		326		154		966		50		67		—
less: Carried interest and performance fee payouts		5,529		—		—		—		86		—		—		—
Net fees		26,207		19,643		15,499		14,971		11,444		10,527		9,895		10,195
Commissions		6,761		9,386		6,133		5,179		6,599		6,056		3,293		3,315
less: Commission expense		2,788		3,789		2,377		1,870		2,658		2,654		1,356		1,386
Net commissions		3,973		5,597		3,756		3,309		3,941		3,402		1,937		1,929
Finance income (1)		1,629		757		656		914		2,481		2,561		3,435		2,946
Gain (loss) on investments		(3,089	)	4,408		8,142		(4,352	)	(1,252	)	600		(408	)	5
Other income		949		914		285		113		364		91		93		77
Total net revenues		29,669		31,319		28,338		14,955		16,978		17,181		14,952		15,152
Compensation		20,193		16,280		10,991		10,125		10,269		9,714		7,463		7,801
less: Carried interest and performance fee payouts		5,529		—		—		—		86		—		—		—
less: Commission expense		2,788		3,789		2,377		1,870		2,658		2,654		1,356		1,386
less: Severance and new hire accruals		65		210		358		667		157		168		650		109
Net compensation		11,811		12,281		8,256		7,588		7,368		6,892		5,457		6,306
Severance and new hire accruals		65		210		358		667		157		168		650		109
Placement and referral fees		191		522		246		86		434		114		251		58
Selling, general and administrative		2,439		2,523		3,049		3,544		2,986		3,175		3,256		3,062
Interest expense		331		320		350		236		269		297		226		244
Depreciation and amortization		1,023		992		1,049		988		1,254		893		819		829
Other expenses (gain)		4,528		4,154		2,893		(1,081	)	2,117		(167	)	3,051		1,038
Total expenses		20,388		21,002		16,201		12,028		14,585		11,372		13,710		11,646
Net income		6,720		8,704		10,492		1,062		1,445		4,336		1,581		2,847
Net Iincome per share (2)		0.27		0.36		0.43		0.04		0.06		0.18		0.06		0.12
Adjusted base EBITDA		14,751		12,024		9,204		8,187		7,441		7,612		7,032		6,918
Adjusted base EBITDA per share (2)		0.60		0.49		0.38		0.33		0.31		0.31		0.29		0.28
Operating margin		51	%	47	%	49	%	43	%	38	%	36	%	39	%	39	%
Summary balance sheet
Total assets		377,348		358,300		338,931		318,318		324,943		325,442		338,530		332,504
Total liabilities		86,365		81,069		70,818		65,945		53,313		51,774		68,008		54,009
Total AUM		17,390,389		16,259,184		13,893,039		10,734,831		9,252,515		8,548,982		8,103,723		7,909,488
Average AUM		16,719,815		16,705,046		13,216,415		11,007,781		8,932,651		8,608,001		7,898,334		7,887,089

 

(1)                    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 on-balance sheet loans and brokerage client accounts

 

(2)                    Per share amounts for periods before May 28, 2020 reflect retrospective treatment of the 10:1 share consolidation.

 

8

 

Results of operations

 

AUM summary

 

AUM reached a record $17.4 billion as at December 31, 2020, up $1.1 billion (7%) from September 30, 2020 and up $8.1 billion (88%) from December 31, 2019. On a three and twelve months ended basis, we benefited from strong market value appreciation across most of our fund products. We also benefited from strong inflows in our physical trusts that more than offset the anticipated redemption experience in our precious metals strategies post-Acquisition (the Acquisition added $1.7 billion of AUM at time of closing).

 

3 months results

 

(In millions $)		AUM Sep. 30, 2020		Net inflows (1)		Market value changes		Other (2)		AUM Dec. 31, 2020		Blended management fee rate (3)
Exchange listed products
- Physical trusts		11,131		201		519		—		11,851		0.39	%
- ETFs		381		15		(14	)	—		382		0.35	%
		11,512		216		505		—		12,233		0.39	%
Managed equities
- Precious metals strategies		2,447		(9	)	41		—		2,479		0.79	%
- Other (4)		312		—		40		—		352		0.92	%
		2,759		(9	)	81		—		2,831		0.81	%
Lending (5)		906		94		18		(19	)	999		1.05	%
Other (6)		1,082		87		158		—		1,327		0.79	%
Total (7)		16,259		388		762		(19	)	17,390		0.53	%

 

12 months results

 

(In millions $)		AUM Dec. 31, 2019		Net inflows (1)		Market value changes		Other (2)		AUM Dec. 31, 2020		Blended management fee rate (3)
Exchange listed products
- Physical trusts		6,579		2,752		2,520		—		11,851		0.39	%
- ETFs		252		61		69		—		382		0.35	%
		6,831		2,813		2,589		—		12,233		0.39	%
Managed equities
- Precious metals strategies		601		(658	)	795		1,741		2,479		0.79	%
- Other (4)		350		16		(14	)	—		352		0.92	%
		951		(642	)	781		1,741		2,831		0.81	%
Lending (5)		783		260		41		(85	)	999		1.05	%
Other (6)		688		226		413		—		1,327		0.79	%
Total (7)		9,253		2,657		3,824		1,656		17,390		0.53	%

 

(1)                See ‘Net inflows’ in the key performance indicators (non-IFRS financial measures) section of this MD&A.

(2)                Includes new AUM from fund acquisitions and lost AUM from fund divestitures and capital distributions of our lending LPs.

(3)                Management fee rate represents the net amount received by the Company.

(4)                Includes institutional managed accounts.

(5)                $1.1 billion of committed capital remains uncalled, of which $0.4 billion earns a commitment fee (AUM), and $0.7 billion does not (future AUM).

(6)                Includes Sprott Korea Corp., private equity strategy in Sprott Asia and high net worth discretionary managed accounts in the U.S.

(7)                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.

 

9

 

Key revenue lines

 

Management fees

 

Management fees were $22 million in the quarter, up $11.3 million from the prior period and were $72.9 million on a full year basis, up $31.5 million. Performance fees finished the year at $10.1 million, up $8.3 million from the prior period. Net fees were $26.2 million in the quarter, up $14.8 million from the prior period and were $76.3 million on a full year basis, up $34.3 million. The revenue increases in the quarter and on a full year basis were primarily due to strong net inflows and market value appreciation in our exchange listed products segment. We also benefited from strong market value appreciation and the addition of new AUM from the Acquisition in our managed equities segment and higher fees in our lending segment.

 

 

Commission revenues

 

Commission revenues were $6.8 million in the quarter, up $0.2 million (2%) from the prior period and were $27.5 million on a full year basis, up $8.2 million (43%).  Net commissions were $4 million in the quarter, up slightly from the prior period and were $16.6 million on a full year basis, up $5.4 million (48%). The increase was due to strong equity origination, sales and trading activities in our brokerage segment throughout the year.

 

Finance income

 

Finance income was $1.6 million in the quarter, down $0.9 million (34%) from the prior period and was $4 million on a full year basis, down $7.5 million (65%). Finance income primarily includes interest income from our co-investments in LP units and other ancillary income earned directly or indirectly from lending activities. The comparative period finance income also includes interest income from legacy loans. Lower finance income in the quarter and on a full year basis was primarily due to the repayment of legacy balance sheet loans.

 

10

 

Key expense lines

 

Compensation

 

Compensation was $20.2 million in the quarter, up $9.9 million (97%) from the prior period and was $57.6 million on a full year basis, up $22.3 million (63%). Net compensation was $11.8 million in the quarter, up $4.4 million (60%) from the prior period and was $39.9 million on a full year basis, up $13.9 million (53%).

 

 

The increase in the quarter and on a full year basis was primarily due to higher variable at-risk pay relating to the Company’s significantly improved financial performance over the year. Annual adjusted base EBITDA was up 52% year-over-year, consistent with the 53% increase year-over-year in net compensation. Adjusted base EBITDA, operating margins and net revenue targets form the basis of the quantitative performance measures used when determining variable at-risk compensation. Higher compensation was also the result of additional base salaries attributable to new hires from the Acquisition. The Company reduced its compensation ratio over the last five years (net compensation / net fees & net commissions) from a high of 54% to a low of 43% in 2020 while correspondingly increasing the proportion of variable at-risk pay (AIP and LTIP) our employees receive relative to fixed compensation.

 

Selling, general & administrative (“SG&A”)

 

SG&A was $2.4 million in the quarter, down $0.5 million (18%) from the prior period and was $11.6 million on a full year basis, down $0.9 million (7%). The decrease in the quarter and on a full year basis was the result of lower marketing and sales costs relating to travel restrictions due to COVID-19.

 

11

 

Earnings

 

Net income was $6.7 million in the quarter, up $5.3 million from the prior period and was $27 million on a full year basis, up $16.8 million. Adjusted base EBITDA was $14.8 million in the quarter, up $7.3 million (98%) from the prior period and was $44.2 million on a full year basis, up $15.2 million (52%).  During the quarter and on a full year basis, we benefited from increased fees due to strong net inflows and market value appreciation in our exchange listed products segment, the Acquisition and additional market value appreciation in our managed equities segment. We also benefited from increased commission revenues in our brokerage segment. These increases more than offset lower finance income in our lending segment and higher variable at-risk compensation on increased revenues, earnings generation and strong operating margins across the Company.

 

Additional revenues and expenses

 

Investment gains on a full year basis were mainly due to market value appreciation of certain equity holdings and co-investments. These gains were partially offset by unrealized losses on digital gold strategies in the fourth quarter.

 

Other income was higher mainly due to the consolidation of certain feeder funds. Interest expense, placement and referral fees were largely flat  year-over-year.

 

Amortization of intangibles was flat from the prior period. Depreciation of property was slightly higher on a full year basis from the prior period mainly due to increased depreciation expense related to a new lease attributable to the Acquisition.

 

Other expenses were higher primarily due to the increase in contingent consideration related to the Acquisition.

 

Balance sheet

 

Total assets were $377.3 million, up $52.4 million (16%) from December 31, 2019. The increase was primarily due to the increase in intangible assets related to the Acquisition.

 

Total liabilities were $86.4 million, up $33.1 million (62%) from December 31, 2019. The increase was primarily due to the accrual of contingent consideration related to the Acquisition and accrued liabilities related to non-controlling interest.

 

Total shareholder’s equity was $291 million, up $19.4 million (7%) from December 31, 2019.

 

12

 

Reportable operating segments

 

Exchange listed products

 

		3 months ended				12 months ended
(In thousands $)		Dec. 31, 2020		Dec. 31, 2019		Dec. 31, 2020		Dec. 31, 2019
Summary income statement
Management fees		11,449		6,574		37,670		24,481
Other income		1		21		10		47
Total revenues		11,450		6,595		37,680		24,528
Net compensation		1,437		1,101		5,085		3,662
Severance and new hire accruals		—		21		73		147
Selling, general and administrative		553		939		2,230		3,034
Interest expense		76		201		338		824
Depreciation and amortization		242		239		940		952
Other expenses		994		320		485		655
Total expenses		3,302		2,821		9,151		9,274
Income before income taxes		8,148		3,774		28,529		15,254
Adjusted base EBITDA		9,497		4,575		30,563		17,988
Operating margin		81	%	68	%	79	%	73	%
Total AUM		12,233,316		6,831,093		12,233,316		6,831,093
Average AUM		11,786,235		6,741,239		9,914,709		6,261,066

 

3 and 12 months ended

 

Income before income taxes was $8.1 million in the quarter, up $4.4 million from the prior period and was $28.5 million on a full year basis, up $13.3 million. Adjusted base EBITDA was $9.5 million in the quarter, up $4.9 million from the prior period and was $30.6 million on a full year basis, up $12.6 million. Our quarter and full year results benefited from higher average AUM given strong inflows and market value appreciation in our physical trust products which more than offset higher net compensation.

 

13

 

Managed equities

 

		3 months ended				12 months ended
(In thousands $)		Dec. 31, 2020		Dec. 31, 2019		Dec. 31, 2020		Dec. 31, 2019
Summary income statement
Management fees		5,901		2,001		20,621		7,805
Carried interest and performance fees		10,075		1,811		10,075		1,811
less: Trailer and sub-advisor fees		400		998		1,262		1,211
less: Carried interest and performance fee payouts		5,529		86		5,529		86
Net fees		10,047		2,728		23,905		8,319
Gain on investments		1,719		1,176		9,803		3,558
Other income		297		364		855		884
Total net revenues		12,063		4,268		34,563		12,761
Net compensation		2,287		954		8,234		4,470
Severance and new hire accruals		12		90		142		90
Selling, general and administrative		356		613		1,726		1,876
Interest expense		200		—		686		—
Depreciation and amortization		54		51		208		212
Other expenses		2,579		20		4,899		200
Total expenses		5,488		1,728		15,895		6,848
Income before income taxes		6,575		2,540		18,668		5,913
Adjusted base EBITDA		3,288		791		10,762		3,167
Operating margin		56	%	32	%	53	%	35	%
Total AUM		2,831,023		950,911		2,831,023		950,911
Average AUM		2,735,878		907,365		2,649,120		854,691

 

3 and 12 months ended

 

Income before income taxes was $6.6 million in the quarter, up $4 million from the prior period and was $18.7 million on a full year basis, up $12.8 million. Our quarter and full year results benefited from increased management fees from the Acquisition, higher net performance fees and improved equity valuations in our funds, which more than offset higher net compensation and higher other expenses resulting from increase in contingent consideration related to the Acquisition. Adjusted base EBITDA was $3.3 million in the quarter, up $2.5 million from the prior period and was $10.8 million on a full year basis, up $7.6 million. Our quarter and full year results benefited from increased management fees, which more than offset higher net compensation.

 

14

 

Lending

 

		3 months ended				12 months ended
(In thousands $)		Dec. 31, 2020		Dec. 31, 2019		Dec. 31, 2020		Dec. 31, 2019
Summary income statement
Management fees		2,198		1,388		9,366		5,646
Finance income (1)		1,629		2,261		3,838		9,962
Gain (loss) on investments		2,062		(101	)	2,037		(1,152	)
Other income		185		268		268		289
Total revenues		6,074		3,816		15,509		14,745
Net compensation		1,631		1,256		5,788		4,944
Severance and new hire accruals		15		—		212		61
Placement and referral fees		41		15		192		44
Selling, general and administrative		318		222		887		777
Interest expense		—		30		11		61
Depreciation and amortization		1		27		53		107
Other expenses		2,115		1,577		1,326		2,230
Total expenses		4,121		3,127		8,469		8,224
Income before income taxes		1,953		689		7,040		6,521
Adjusted base EBITDA		2,423		2,459		7,272		10,725
Operating margin		61	%	64	%	59	%	56	%
Total AUM (2)		999,037		783,328		999,037		783,328
Average AUM		950,909		555,868		880,577		496,361

 

(1)                Includes: (1) co-investment income from lending LP units held as part of our co-investment portfolio; and (2) interest income from on-balance sheet loans in the prior period.

(2)                $1.1 billion of committed capital remains uncalled, of which $0.4 billion earns a commitment fee (AUM), and $0.7 billion does not (future AUM).

 

3 and 12 months ended

 

Income before income taxes was $2 million in the quarter, up $1.3 million from the prior period and was $7 million on a full year basis, up $0.5 million. Adjusted base EBITDA was $2.4 million in the quarter, down slightly from the prior period and was $7.3 million on a full year basis, down $3.5 million (32%). Income before income taxes benefited from higher management fees and gains on our co-investments. However, our quarter and full year adjusted base EBITDA results were primarily impacted by lower finance income given the full repayment of legacy loans in the third quarter of 2019, which more than offset increased management fees on a full year basis.

 

15

 

Brokerage

 

		3 months ended				12 months ended
(In thousands $)		Dec. 31, 2020		Dec. 31, 2019		Dec. 31, 2020		Dec. 31, 2019
Summary income statement
Commissions		6,882		6,261		26,705		18,480
less: Commission expense		2,713		2,650		10,749		8,024
Net commissions		4,169		3,611		15,956		10,456
Management fees		886		358		2,168		1,298
Finance income		—		220		118		1,461
Gain (loss) on investments		5		165		1,590		(113	)
Other income		24		22		102		82
Total net revenues		5,084		4,376		19,934		13,184
Net compensation (1)		1,859		1,667		6,033		6,510
Severance and new hire accruals		30		25		680		390
Placement and referral fees		98		355		603		673
Selling, general and administrative		1,031		835		4,151		4,299
Interest expense		12		13		45		58
Depreciation and amortization		145		136		533		491
Other expenses (gain)		494		24		660		(3	)
Total expenses		3,669		3,055		12,705		12,418
Income before income taxes		1,415		1,321		7,229		766
Adjusted base EBITDA		2,522		1,756		8,052		3,342
Operating margin		53	%	41	%	47	%	24	%

 

(1)                Net compensation is presented excluding commission expense, which is reported net of commission revenue.

 

3 and 12 months ended

 

Income before income taxes was $1.4 million in the quarter, up $0.1 million from the prior period and was $7.2 million on a full year basis, up $6.5 million. Adjusted base EBITDA was $2.5 million in the quarter, up $0.8 million from the prior period and was $8.1 million on a full year basis, up $4.7 million. Our quarter and full year results benefited from strong equity origination, sales and trading activities.

 

16