Sprott Inc

TSX:SII

Earnings Call Transcript 2020-Q2

[Operator]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Sprott Inc.'s 2020 Second Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, August 7, 2020. 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 statements within the meaning of applicable Canadian and U.S. securities laws. Forward-looking statements -- forward-looking information and statements involve risks and uncertainties, and undue reliance should not be placed on such information and statements. Certain material factors or assumptions are implied in providing forward-looking information or making forward-looking statements, and actual results may differ materially from those expressed or implied in such information or statements. For additional information about factors that may cause actual results to differ materially from expectations and about material factors or assumptions applied in providing forward-looking information or making forward-looking statements, please consult the MD&A for the quarter and Sprott's other filings, including its most recent annual information form with Canadian and U.S. securities regulators. Forward-looking information is given and forward-looking statements are made as of the date hereof, and we do not undertake to update or revise our forward-looking information or statements, whether as a result of new information, future events or otherwise, except as may be required by law. At this time, I would like to turn the call over to your speaker, Peter Grosskopf, CEO.

[Peter F. Grosskopf, CEO & Director]

Thank you, operator. Well, I can tell we're listed in the U.S. now. Good morning, everyone, and thanks for joining us today. I hope that you are all staying safe and managing through these times. On the call with me today is Whitney George, Kevin Hibbert, John Ciampaglia and Glen Williams. Our Q2 results were released this morning and are available on our website where you can also find our financial statements and MD&A. So starting on Slide 4. The events of this year have been dramatic and will have far-reaching impacts. Global governments have been forced to react to COVID in an unprecedented manner, not just because of the scale of the issues but also because the global economy is no longer large or robust enough to handle the amount of debt which has been created over the past 50 years. In our view, central banks have painted themselves into a corner leaving no option other than artificially low interest rates, debt monetization and ultimately, currency to basement. And this uncertain environment will support the gold thesis for the foreseeable future in our view. In response, gold and silver and their related equities have broken out decisively in 2020, outperforming most other asset classes and certainly every other currency. Specifically, gold has gained more than 33% this year. It recently breached the key $2,000 level and is setting new highs relentlessly. Gold producer equities have also performed well, rising more than 50% after recovering nicely from the sell-off in late March. While sentiment indicators suggest that a correction could be expected and healthy, gold is now well supported by long-term fundamentals. Turning now to Slide 5 for some look at recent highlights. With rising gold and silver prices, and dramatically increased interest in the sector, Sprott has experienced significant growth in our asset base. On a year-to-date basis, as of August 4, our assets under management have increased by 83% to $17 billion. These gains have been driven by a combination of factors, including $1.9 billion in year-to-date sales, $4.2 billion in market value appreciation and the acquisition of the Tocqueville gold strategies, which was completed in January and what has turned out to be a very timely transaction. We completed a share consolidation in May and began trading on the New York Stock Exchange shortly after. We're pleased with the reception that our listing has received, and we'll discuss that in more detail later. Yesterday, we declared a USD 0.23 per share dividend that will be payable on September 1, 2020. Can we get the next slide, please. Sorry, I've misplaced my notes here.

[Glen Williams]

I think there's a slight delay on the slides.

[Peter F. Grosskopf, CEO & Director]

Okay. Just give me 1 second. Sorry, technology and the remote web. Okay. Yes, I don't -- I'm sorry. I don't have the next slide on my screen. So I'm going to pass it over to John Ciampaglia to discuss some of the recent performance in our exchange-listed products.

[Glen Williams]

I believe it's actually Kevin, who's going to go through financials.

[Peter F. Grosskopf, CEO & Director]

I'm sorry.

[Kevin Lloyd Hibbert, Senior MD, CFO & Co]

All right. Thanks. Thanks, Glen. Thanks, Peter. Good morning, everyone. If you can, I'm on Slide 6, which is the AUM summary as at June 30, 2020. That slide also provides a snapshot of our current AUM estimate as at August 4, 2020. Our AUM as at June 30 of this year was $13.9 billion, up $3.2 billion or 29% from March 31, 2020, and up $4.6 billion or 50% from December 31, 2019. Our AUM benefited largely from strong precious metals prices in our physical trusts and strong market value appreciation across most of our equity fund products. We also benefited from strong inflows, to Peter's point earlier, in our physical trusts as well as capital calls, net of distributions in our lending funds. Those increases more than offset the anticipated redemptions in our precious metals equity strategies post the acquisition of Tocqueville's Gold Funds earlier this year. Now subsequent to quarter end, we continue to experience very strong inflows into our physical trust products and also continue to benefit to a significant degree from strong precious metals price appreciation and robust equity market valuations in our actively managed fund strategies. As a result of all this, our AUM estimate as of August 4, 2020, is $17 billion, up $3.1 billion or 22% from the quarter ended June 30. On Slide 7. You'll see a look at our second quarter earnings. Adjusted base EBITDA in the quarter was $9.2 million, up $2.2 million or 31% from the prior period. The increase was primarily due to strong net inflows and precious metals price appreciation in our exchange-listed products segment and the Tocqueville gold strategies acquisition earlier this year and our managed equity segment. We also, however, benefited from increased commission revenues in our brokerage segment due to improved equity origination and transaction activity. These increases were partially offset by lower finance income in our lending segment given the repayment of legacy balance sheet loans last year and higher-than-anticipated capital distribution levels in our lending LPs last year. For more information on our revenues, expenses and our EBITDA, you can refer to the supplemental information section of this presentation as well as our second quarter MD&A filed earlier this morning. That said, I'll turn things over to John.

[John Ciampaglia, Senior Managing Director]

Great. Thanks, Kevin, and good morning, everybody. Just moving to Slide 8. We obviously had a very good quarter in our exchange-listed product suite. Very strong demand. And I think what's interesting is that this psychological barrier has been broken with the new gold price hitting an all-time high. As I said earlier in the year, gold had reached a high in just about every currency in the world, except the U.S. dollar. And we feel as though this was kind of a psychological hurdle for the largest market in the world to break through. And with gold breaking through the $1,921 barrier recently and pushing on to over $2,000, we think there's tremendous momentum in the trade right now. It feels very similar to 2010 where we had very strong interest from the western markets, which were driving the price gains and the flows in the gold and silver market. The high gold price and the high silver price has definitely had an impact in the eastern markets, which are more price-sensitive like in India and China. But what we find is that in these bull markets, it's western-based investor that really drives the price. We're seeing very strong demand, I guess, across the board. But I think in the last couple of months, we've seen a rotation from typical gold and silver investors to now more generalists. And I think this has us very excited, and it affirms to us that we're still in the very early stages of this cycle. As I said, in the early part of the sell-off in the equity markets, most of the flows came from investors already invested in the trade. But in the last couple of months, we're seeing more and more people come to us and have conversations about moving part of their fixed income allocation away from -- lowering the fixed income allocation and putting some money into physical gold. And I think this is quite exciting because investors are basically coming to a conclusion that there's not a lot of hedging ability in fixed income at these very low levels of real yield. That's very exciting to us. We think that's -- this is going to drive the next stage of this rally. And as I said, the interest we're seeing is global, and it's across many different investor segments. We're seeing much more institutional interest. We're seeing much more block trading in our funds, and that's what's really driving the flows. You can see that in the month of July. We had a very nice pop in sales, just over $500 million. To August 6, that number is actually about $130-odd million. So the momentum has been very good with the physical trust sales. And I think the other important point to make is that liquidity begets liquidity. We're seeing a lot more trading in our funds. The funds are getting much larger in size. The Physical Gold Trust broke through $5 billion, the Gold and Silver Trust is almost at $5 billion, and our Silver Fund just broke through $2.5 billion. So these are very liquid large vehicles for institutions to participate in. And I'll pass it over to Whitney now.

[W. Whitney George, President]

Thank you, John. On Slide 9, I want to touch on our managed equities business. As everybody knows, we have achieved significant scale in that business with the acquisition of the Tocqueville team and their assets. John Hathaway, Doug Groh are working wonderfully with our Canadian-based team that was in place already. So we obviously have, I think, the largest group of professionals approaching the gold equities. Our funds are performing well. The slide says most funds are up 30% to 50%, more up-to-date would be more like 40% to 80%, now that we've had a very, very strong performance, particularly in silver very recently. And our flagship gold equity strategy headed up by John and Doug Groh is up over 100% since it's March low. So we're performing well. And we're well positioned to capture new interest in the area. Our relative performance versus peers has improved quite dramatically due to the broadening out of the market into some smaller and mid-cap stocks, which are usually where we add the most value in terms of fundamental research. But the inflows into the equities are still subdued, irrespective of the very strong performance. And we are getting a very good response to our digital marketing efforts. We have some of the highest engagement numbers that anybody in the industry, not just the mining industry, has seen. And our webcast and other online presentations are growing record attendance for us. So I think we're getting the message out there. And I think there are a lot of people watching, maybe sitting on their hands a little bit just waiting for a reentry point. On Slide 10 is a chart that gives you a sense of where we are in terms of gold equities relative to gold bullion itself. This is a measure of the Arca Gold BUGS Index, which is an equally weighted index of gold mining companies relative to the price of physical gold. And so you can see we are nowhere near the end of a potential bull market that we think has just gotten underway in the last year or so. And finally, for me, what's going to cause that recovery. The outlook for gold mining companies has dramatically diverged from other equity categories. The Slide 11 chart shows you the expected 1 year earnings growth, gold equities, in general, up 100% plus. And that would compare to the largest S&P companies, which are expected to have earnings decline by 16%. That, if nothing else, we think, will draw attention. It may come first from algorithmic investing or passive funds that are looking for these kinds of factors. But we do think there's a lot of opportunity for it to broaden out. Back to you, Peter.

[Peter F. Grosskopf, CEO & Director]

Thanks, Whitney. Turning now to Slide 12 for a look at our private strategies. In our lending business, our deployment activity has ramped up considerably and our second private lending fund is now approximately $365 million in signed loan agreements with $278 million in deployed AUM. Perhaps more importantly, we have a very strong pipeline of opportunities and are currently tracking to reach full capacity in that second lending fund sooner than we initially anticipated, leading us to start planning for additional capital raising next year. Late last year, we launched a new streaming and royalty strategy to complement our lending funds, and this strategy was seeded with a $200 million lead order. We have begun making investments at a decent pace now and have been busy building out the pipeline and the investment team there. Turning to Slide 13. As I mentioned at the start of the call, we began trading on the NYSE in June. We were pleased with the reception that our shares received. Our trading volumes, in particular, have improved substantially. And just to recap the reasons for the listing, it was a natural next step in our evolution and expected to provide our shareholders and investors with a number of benefits, including reduced volatility and trading costs for U.S. investors, broader investor access across the U.S. and globally, and very importantly, for us, a cross-marketing opportunities between our clients and our shareholders when we make presentations to groups of investors. The majority of our clients and shareholders reside in the U.S., and we look forward to getting on the road and meeting more of them in person as travel restrictions ease. On Slide 14. We've highlighted some of the growth initiatives that we will be pursuing in the second half of 2020 and onwards. These is many of these that are familiar to you. With interest in the sector rising and new inflows coming into our products, we are prepared to invest a bit more in sales coverage. We have an excellent team that covers national organizations and regional offices, and they do an awesome job, especially with online and web marketing, as Whitney was saying. But we've got the phones ringing off the hook, and we've got a lot of opportunities. So we are prepared to invest, we're exploring new mining-oriented exchange-listed products in John's area to capitalize on existing brand awareness in our platform and some other interesting opportunities with mining commodities. And we're getting a bit closer and continuing to pursue international distribution relationships with Europe, Asia, Australia being geographies that we view as attractive. On the acquisitions side, we're actively reviewing selected opportunities in the managed mining investment space. And lastly, we're continually fielding approaches from investment and technical specialists that are interested in working at Sprott and pitching us on new ideas. So lastly, and moving on to Slide 15 for a few closing thoughts. In our view, gold is now a mandatory portfolio insurance allocation for both retail and institutional investors. It is clear to us that the state of the global economy and the unmanageable debt position that has been created will require easy money over the long term. And financial repression, currency depreciation and yield curve control are the tools that are left for the central banks and policymakers to use, and all of these will reinforce gold's role as a reliable store of value. All these factors contribute to an extremely favorable macro outlook for precious metal investments. At Sprott, we're energized by this opportunity that we have to build a much larger market leader in the precious metals sector. We look forward to continuing to create value for our clients and our shareholders. And that concludes our remarks for today's call. I'll pass it back to the operator for questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Gary Ho from Desjardins Capital.

[Gary Ho, Analyst]

Maybe first question for John, perhaps. Just wanted to focus on the exchange-listed products first. Great momentum in Q2 and so far in Q3. Maybe talk about where you're seeing most of the flows come from? Is it retail allocating higher portion, advisers buying in? I just want a bit more color kind of under the surface where you're seeing that. I think you alluded to some of the rotation from specialists too and more so, more recently, generalists?

[John Ciampaglia, Senior Managing Director]

Sure. Good to talk to you, Gary. As I said, in the beginning of the rotation, interestingly, it was the traditional retail silver buyers that kind of kicked things off. When silver touched below $12, they came out in mass and basically acquired every ounce of silver they could find. And that -- and they were the early mover, and they're hard-core believers and long-term holders. So -- but more recently, what we've seen is the baton has been passed more to family offices, and now we're seeing increasingly more registered investment advisers in the U.S. that are having conversations with us about adding allocations to gold. And I can tell you many of these RIAs have not had any gold in their portfolio -- client portfolios for years. So it's somewhat like a time work, like it's like we're back in 2010, again, having these kind of conversations. So what we typically try to do is educate the marketplace about the role of precious metals in the portfolio. We have a whole suite of funds, so we'd like to take a consultative approach. More recently, I would say, the sizes of the institutions are getting larger, larger wealth managers, we're starting to see some interest from the wire houses in the U.S. So I think it's the larger money now that is starting to move. And you could see that in our sales pattern, where in March, April, May, we had a really good momentum in sales. And then we had bit of a lull as the equity markets recovered. And then even though the equity markets have been incredibly buoyant with the tech stocks rallying, having over $500 million in sales tells us that people are still concerned out there and are starting to now not think so much about hedging equity risk, but they're thinking about their fixed income portfolios, how they reallocate? There's not much juice left in the squeeze out of fixed income. If there is another correction in the equity market, will their fixed income portfolios be able to act as a shock absorber. And so they are looking at gold as an alternative in that mix. We're not saying people are dumping all their treasuries, but I think people are thinking about adding gold in lieu of some fixed income. And obviously, that is a huge capital pool to draw from, and it doesn't take much of a reallocation from the treasury pool to the gold pool to really move it. With silver, it's a little different. People are getting excited about the price move. This is very eerily similar to 2010. I remember vividly, in the early part of 2010, Eric Sprott said, "I think silver will be at $50 by the end of the year." At that time, it was about $18, I recall. And he was not exactly right, but he was only off by $1. So it feels like the momentum in silver is similar to 2010, where it's just -- again, it's a much smaller market than gold. And people are chasing that momentum, for sure. So it's a variety of factors, but I think the larger asset allocators, the larger wealth managers and family offices are starting to move to gold. And I think it explains the global phenomena we're seeing across all the gold ETFs, the flows year-to-date globally have been ginormous. And those are primarily funds listed in the U.S. and the U.K. and Switzerland. So it's a global phenomenon. We think it's a global reallocation.

[Gary Ho, Analyst]

I appreciate it. Second question, maybe for Kevin. Saw a nice lift in EBITDA margin, staying with the exchange-listed products segment. 77% this quarter from 71% last year. Maybe a bigger picture question. Where does this platform top out in terms of margins? And what AUM level do you need to achieve that?

[Kevin Lloyd Hibbert, Senior MD, CFO & Co]

Thanks, Gary. I would say we're pretty much there right now. At this operating margin level, the growth in AUM wouldn't cause the margin to grow that much more. I mean if we stay at the pace of what we're seeing now, perhaps, we can start knocking on the door of 80%. But I think we're money good for 77% for the rest of the year.

[Gary Ho, Analyst]

Okay. Perfect. Last one, Peter, just given the increased sentiment in the space, I think you mentioned a few kind of new initiatives, maybe on the product side. Can you maybe elaborate, would you pull some of that forward, perhaps talk about the M&A front and maybe thoughts on use of capital here.

[Peter F. Grosskopf, CEO & Director]

Sure. Well, there's been increased investor interest across a number of different mining commodities. We've seen a resurgence of interest in uranium and then battery metals. And even base metals and specialty metals like rare earths are getting a lot of interest. So we do have an innovative and, I think, very accomplished physical products team. We can get things done quickly and build new investment areas around some of those ideas. So we're constantly exploring them. We're pretty conservative in that we don't really want to launch anything or get anything going until we're certain there's a pretty broad-based demand and a sizable product for it. There's no question our hurdles have gone up in terms of relevance. And then even in the gold area, there's new innovations that can be looked at. So there's no shortage of creative ideas around here, and it's only a question of whether we get the right mechanics for a launch. And I think your second -- the second part of your question was related to M&A or balance sheet. Our balance sheet is just perfect right now. We have a lot of undrawn facilities and some capacity to do things. And we're certainly not levered by any conventional measure. So we see opportunities for tuck-ins and for smaller franchises that could become part of our platform, and we'll react to them as we see them. In terms of large deployments of capital, I don't really need to do that right now. I mean we just don't see the need to be buying huge cash flow businesses. In our business, talent is everything. And if we want the talent, those people will come in as partners and shareholders. So I just don't see the need for a heavy balance sheet at this time.

[Operator]

Our next question comes from the line of Geoff Kwan from RBC Capital Markets.

[Geoffrey Kwan, Analyst]

Kevin, can you just remind me just how the performance restructure on the lending fund works? And what would be a reasonable way to go about trying to kind of model out the performance fees for the lending funds?

[Kevin Lloyd Hibbert, Senior MD, CFO & Co]

I would say you could just start with the management fee breakdown in the MD&A. That provides, I think, a decent starting point for you. And then just apply it against the AUM numbers we disclosed.

[Geoffrey Kwan, Analyst]

I mean, is there anything from a performance standpoint you can kind of point to as to kind of where you stand today on the fund on the returns? Is it like mid-teens so far or...

[Kevin Lloyd Hibbert, Senior MD, CFO & Co]

No. If you recall, we talked about in a number of quarterly calls, the fact that we can't provide an awful lot of guidance or insight into that space. From a reporting perspective under IFRS and under U.S. GAAP, they're both converged now. We can't disclose or provide any numbers around performance if we're still in the clawback period, which we are. What I would say, in general terms, is that the lending funds are doing very, very well. And so I would expect a decent number at the time we eventually close -- either close the funds or move on. So that's the most I could say about that.

[Geoffrey Kwan, Analyst]

Okay. In terms of -- you guys have talked about higher engagement from investors looking at gold and other precious metals. What is needed to get that, let's call it, hockey-stick like flows into the precious metal equity funds? Is it just a matter of time with all these talks and conversions? Or has there historically maybe been some sort of catalyst or event that really gets it going?

[Peter F. Grosskopf, CEO & Director]

Whitney, can you handle that one?

[W. Whitney George, President]

Sure. Well, things are playing out like they have in past cycles, maybe at an accelerated pace. Physical gold -- everything went down in March, but physical gold recovered very, very quickly, is now hitting new highs. Silver has sort of lagged and then played serious catch-up in the last 2 months. And then equities are still equities, whether they're in the mining hemisphere or technology and they will ultimately start to catch people's interest just based on the fundamentals. As I mentioned, there are very few places that are beneficiaries of this COVID pandemic to the extent that the mining industry is. Their costs are down and under control because of currencies and energy. Yet the end price for the product they produce is up dramatically. So you get earnings surprises, earnings revisions, earnings momentum, kind of all the factors that either cause people to buy any sector or a group of equities. It just takes a little while. There is a bit of a hangover from all of the things that went wrong during -- from the peak of the last gold phase. But all these companies are healthy. They're conservative. Their balance sheets are in great shape. M&A is robust because it's a little -- there's such a reduced level of activity in exploration and development, and that takes a very long time for that to catch up, as you know. So there's a supply demand issue in front of us. And the price of the commodities were starting to reflect that. It won't take long or too much of an allocation to the mining sector out of Apple to drive the entire industry. You're seeing it probably, first and foremost, in ETFs, ours and to a greater extent VanEck's products. Theirs is market cap-weighted. So you've had a very strong start to the performance of the largest mining companies that represent the greatest weights, but it's broadening out. And it will take -- it's starting. And again, maybe a little pullback, so people won't feel they're buying at the top, generates the kind of flows we are expecting. But all the conditions are there for a very nice period here for the next couple of years.

[Geoffrey Kwan, Analyst]

I guess what I'm looking at is, with the precious metals equity funds, specifically, is there a greater risk that maybe the sales may not be as good as in prior cycles because there's more an easier availability for investors to invest in the physical commodity as well as ETFs.

[W. Whitney George, President]

Well, we have ETFs as well. So we're well positioned. Ours happen to be factor-based as opposed to market cap based, which I think is a fundamental advantage long term. Again, there is -- the markets, in general, the equity markets in general, and I'm a generalist, have been driven almost 100% by liquidity. So greater trading volumes, higher market caps, sort of beget more of the same. But again, beneath that, the fundamental business is very healthy and M&A and other things even if investors don't show up the way they have in the past, will certainly drive value away from what we think are very, very reasonable prices. So yes, maybe people never buy gold equities the way they used to. But I think we're pretty well positioned with our product suite and are always considering new products to deliver what we do in the format that investors want to see.

[Geoffrey Kwan, Analyst]

Okay. And just last question I had was, are the conversations you're having with investors, are they looking to gold and silver as capital preservation hedges with optionality on the valuation upside? Or is it a view that there's still massive or significant valuation upside in the commodity and related equities.

[W. Whitney George, President]

So we are talking to investors about our physical products as a very viable alternative with very low cost. We'd like to tell people gold is the original alternative investment. It's liquid, you don't get your money tied up, you don't pay enormous fees. It's -- they are very interested in that. We've been very successful with that conversation, as John said, as a fixed income alternative for the last couple of years. Equities on the other side, we present as a tactical opportunity, as a component of the equity portfolios that people have, and that is yet to kick in the way we expect it to.

[Operator]

[Operator Instructions] Our next question comes from the line of Rasib Bhanji from TD Securities.

[Rasib Ali Bhanji, Associate]

First question was just on your expenses. So now that Tocqueville is fully in the mix right now, would this be a reasonable run rate for the business right now? And also like you mentioned that you'll be investing a bit into more sales and distribution. So would that increase expenses rather?

[Kevin Lloyd Hibbert, Senior MD, CFO & Co]

It's Kevin here. I'll take that. Thanks for the question. I would say that it wouldn't be unreasonable for you to go with what you're seeing here as a run rate, somewhere in the neighborhood of $3 million to $3.5 million a quarter on the SG&A side. When it comes to -- well, when you're asking about expenses, are you also asking, I guess, about compensation levels, too?

[Rasib Ali Bhanji, Associate]

Yes, that too.

[Kevin Lloyd Hibbert, Senior MD, CFO & Co]

Yes. So on the compensation side, there may be a little bit of noise there coming from 2 areas. First, on the LTIP side, and that's, give me second here, that's on Page 14 of the MD&A, we provide some info there. You'll see the LTIP number continue to go down slightly. And that's because a lot of our LTIP grants, if you followed our story long enough, came back in 2017. So now we're approaching the tail end of the amortization of those grants back then. So you should see that coming off. But then you could see the annual incentive payments growing a little bit more to the extent that the environment that is currently robust for us on the revenues and earnings side continues as a significant amount of our compensation is now variable based, so linked to performance. But on the salary side, there's a bit more visibility there. So I would say on that end, you're probably looking at about the right number. We're at about $5.25 million on the salary side, and that's consistent with the few extra bodies that we brought in with the acquisition earlier this year. So salary number that you see on Page 14 is probably a good run rate. The AIP number could go higher if our results continue to move in the direction it has. But then the LTIP number should continue to fall, particularly next year, all things being equal. And then the SG&A, you can probably go $3 million to $3.5 million, if you want.

[Rasib Ali Bhanji, Associate]

Okay. That's really helpful. And just my second question was on the base management fee number that you...

[Kevin Lloyd Hibbert, Senior MD, CFO & Co]

Sorry, I can't hear you. Can you speak up?

[Rasib Ali Bhanji, Associate]

Yes. Sorry, is this better?

[Kevin Lloyd Hibbert, Senior MD, CFO & Co]

Yes. Yes. Perfect. Thanks.

[Rasib Ali Bhanji, Associate]

Okay. Sorry about that. So next question was just on your management fees. So I understand you break down the management fee rate a bit differently versus what we model it. But it seems like the management fee rate came in a bit lower. So just for context, base management fees, they're up 5% versus last quarter, but -- and your average AUM is up around 20% versus last quarter. So does that mean that the management fee rate is trending a bit lower here? Or am I missing something in the calculation?

[Kevin Lloyd Hibbert, Senior MD, CFO & Co]

Well, I haven't -- I can't recall -- I don't have the info right in front of me around where our base rate was in Q1, but it should have been about the same as what I'm seeing here now. What I would say is a lot of our AUM is flooding into the exchange-listed products platform. As you know, that has the lower management fee as a percentage of the per dollar of AUM than our other fund categories. But the important thing to keep in mind, and this is something that our investors are quite excited about, is the fact that kind of tying to Gary's question earlier, the margins -- the operating margins coming from that space tend to be significantly higher than any of our other fee-based businesses. So whilst the fees coming from the exchange-listed products business are lower, and that's where most of our AUM is coming in, the profit margins are significantly higher than what you would see in the other areas. So we're earning about $0.77 on every dollar that comes in the door there, whereas, for example, on the managed equity side, we may have some that are at about a 93 basis point or an 80 basis point or even lending at 100 basis points, but the margins in those spaces tend to range between 60% and 70%. So although the rate on the management fee line may seem lower and that's where all the assets are flowing in, the degree of leverage to our operating earnings is much, much higher, which is why you're seeing the numbers you're seeing today on our EBITDA line.

[Operator]

I show no further questions in the queue. At this time, I'd like to turn the call back to Mr. Peter Grosskopf, CEO, for closing remarks.

[Peter F. Grosskopf, CEO & Director]

Okay. Well, thank you, operator, and thank you all for participating today. We appreciate your interest in Sprott, and we look forward to reporting to you after our next quarter. Have a great weekend.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.