UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2022
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number 001-10932
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) | |
| th Streetrd Floor |
||
(Address of principal executive offices) |
(Zip Code) | |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
| |
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation Yes ☐ No
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2
of the Exchange Act. | ☒ | Accelerated filer | ☐ | ||||
Non-accelerated filer |
☐ | Smaller reporting company | ||||
| Emerging growth company | ||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule ☒
12b-2
of the Exchange Act). Yes ☐ No As of July
26
, 2022, there were
shares of the registrant’s Common Stock, $0.01 par value per share,
outstanding.
WISDOMTREE INVESTMENTS, INC.
Form
10-Q
For the Quarterly Period Ended June 30, 2022
TABLE OF CONTENTS
| PART I: |
4 |
|||||
| ITEM 1. |
4 |
|||||
| ITEM 2. |
34 |
|||||
| ITEM 3. |
52 |
|||||
| ITEM 4. |
53 |
|||||
| PART II: |
53 |
|||||
| ITEM 1. |
53 |
|||||
| ITEM 1A. |
53 |
|||||
| ITEM 2. |
53 |
|||||
| ITEM 3. |
54 |
|||||
| ITEM 4. |
54 |
|||||
| ITEM 5. |
54 |
|||||
| ITEM 6. |
56 |
|||||
Unless otherwise indicated, references to “the Company,” “we,” “us,” “our” and “WisdomTree” mean WisdomTree Investments, Inc. and its subsidiaries.
WisdomTree
®
and Modern Alpha®
are trademarks of WisdomTree Investments, Inc. in the United States and in other countries. All other trademarks are the property of their respective owners. 2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form
10-Q
contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect our results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed in the section entitled “Risk Factors” included in our Annual Report on Form
10-K
for the fiscal year ended December 31, 2021, as amended. If one or more of these or other risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this Report and the documents that we reference in this Report and have filed with the Securities and Exchange Commission, or the SEC, as exhibits to this Report, completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements. In particular, forward-looking statements in this Report may include statements about:
• |
the ultimate duration of the COVID-19 pandemic, or the war in Ukraine, and their short-term and long-term impact on our business and the global economy; |
• |
anticipated trends, conditions and investor sentiment in the global markets and exchange traded products, or ETPs; |
• |
anticipated levels of inflows into and outflows out of our ETPs; |
• |
our ability to deliver favorable rates of return to investors; |
• |
competition in our business; |
• |
whether we will experience future growth; |
• |
our ability to develop new products and services and their success; |
• |
our ability to maintain current vendors or find new vendors to provide services to us at favorable costs; |
• |
our ability to successfully implement our digital assets strategy, including WisdomTree Prime ™ , and achieve its objectives; |
• |
our ability to successfully operate and expand our business in non-U.S. markets; and |
• |
the effect of laws and regulations that apply to our business. |
The forward-looking statements in this Report represent our views as of the date of this Report. We anticipate that subsequent events and developments may cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. Therefore, these forward-looking statements do not represent our views as of any date other than the date of this Report.
3
PART I: FINANCIAL INFORMATION
ITEM 1. |
FINANCIAL STATEMENTS |
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Per Share Amounts)
June 30, 2022 |
December 31, 2021 |
|||||||
(unaudited) |
||||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | $ | ||||||
| Securities owned, at fair value (including $ December 31, 2021, respectively) |
||||||||
| Accounts receivable (including $ 2021, respectively) |
||||||||
| Prepaid expenses |
||||||||
| Income taxes receivable |
||||||||
| Other current assets |
||||||||
| |
|
|
|
|||||
| Total current assets |
||||||||
| Fixed assets, net |
||||||||
| Indemnification receivable (Note 20 ) |
||||||||
| Securities held-to-maturity |
||||||||
| Deferred tax assets, net |
||||||||
| Investments (Note 7 ) |
||||||||
| Right of use assets—operating leases (Note 12 ) |
||||||||
| Goodwill (Note 22 ) |
||||||||
| Intangible assets (Note 22 ) |
||||||||
| Other noncurrent assets |
||||||||
| |
|
|
|
|||||
| Total assets |
$ | $ | ||||||
| |
|
|
|
|||||
| Liabilities and stockholders’ equity |
||||||||
| Liabilities |
||||||||
| Current liabilities: |
||||||||
| Convertible notes—current (Note 10) |
|
$ |
|
|
|
$ |
|
|
| Fund management and administration payable |
||||||||
| Compensation and benefits payable |
||||||||
| Deferred consideration—gold payments (Note 9 ) |
||||||||
| Operating lease liabilities (Note 1 2 ) |
||||||||
| Income taxes payable |
||||||||
| Accounts payable and other liabilities |
||||||||
| |
|
|
|
|||||
| Total current liabilities |
||||||||
| Convertible notes—long term (Note 10 ) |
||||||||
| Deferred consideration—gold payments (Note 9 ) |
||||||||
| Operating lease liabilities (Note 12 ) |
||||||||
| Other noncurrent liabilities (Note 20 ) |
||||||||
| |
|
|
|
|||||
| Total liabilities |
||||||||
| Preferred stock – Series A Non-Voting Convertible, par value $11 ) |
||||||||
| |
|
|
|
|
|
|
|
|
| Contingencies (Note 13) |
||||||||
| Stockholders’ equity |
||||||||
| Preferred stock, par value $ |
||||||||
| Common stock, par value $ 2022 and December 31, 2021, respectively |
||||||||
| Additional paid-in capital |
||||||||
| Accumulated other comprehensive (loss) income |
( |
) | ||||||
| Accumulated deficit |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Total stockholders’ equity |
||||||||
| |
|
|
|
|||||
| Total liabilities and stockholders’ equity |
$ | $ | ||||||
| |
|
|
|
|||||
The accompanying notes are an integral part of these consolidated financial statements
4
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Operating Revenues: |
||||||||||||||||
| Advisory fees |
$ | $ | $ | $ | ||||||||||||
| Other income |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total revenues |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Operating Expenses: |
||||||||||||||||
| Compensation and benefits |
||||||||||||||||
| Fund management and administration |
||||||||||||||||
| Marketing and advertising |
||||||||||||||||
| Sales and business development |
||||||||||||||||
| Contractual gold payments (Note 9 ) |
||||||||||||||||
| Professional fees |
||||||||||||||||
| Occupancy, communications and equipment |
||||||||||||||||
| Depreciation and amortization |
||||||||||||||||
| Third-party distribution fees |
||||||||||||||||
| Other |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total operating expenses |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Operating income |
||||||||||||||||
| Other Income/(Expenses): |
||||||||||||||||
| Interest expense |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Gain/(loss) on revaluation of deferred consideration–gold payments (Note 9 ) |
( |
) | ||||||||||||||
| Interest income |
||||||||||||||||
| Impairments (Note 12 ) |
( |
) | ||||||||||||||
| Other losses and gains, net |
( |
) | ( |
) | ( |
) | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Income/(loss) before income taxes |
( |
) | ||||||||||||||
| Income tax expense/(benefit) |
( |
) | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net income/(loss) |
$ | $ | $ | ( |
) | $ | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Earnings/(loss) per share—basic |
$ | $ | $ | ( |
) | $ | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Earnings/(loss) per share—diluted |
$ | $ | $ | ( |
) | $ | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Weighted-average common shares—basic |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Weighted-average common shares—diluted |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Cash dividends declared per common share |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
The accompanying notes are an integral part of these consolidated financial statements
(See Note 2 for revisions made to certain amounts previously reported)
5
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income/(Loss)
(In Thousands)
(Unaudited)
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Net income/(loss) |
$ | $ | $ | ( |
) | $ | ||||||||||
| Other comprehensive (loss)/income |
||||||||||||||||
| Foreign currency translation adjustment, net of income taxes |
( |
) | ( |
) | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Other comprehensive (loss)/income |
( |
) | ( |
) | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Comprehensive income/(loss) |
$ | $ | $ | ( |
) | $ | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
The accompanying notes are an integral part of these consolidated financial statements
6
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
(In Thousands)
(Unaudited)
For the Three Months Ended June 30, 2022 |
||||||||||||||||||||||||
Common Stock |
Additional Paid-In Capital |
Accumulated Other |
Accumulated Deficit |
Total |
||||||||||||||||||||
Shares Issued |
Par Value |
Comprehensive Income |
||||||||||||||||||||||
| Balance—April 1, 2022 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Restricted stock issued and vesting of restricted stock units, net |
( |
) | ( |
) | ||||||||||||||||||||
| Stock-based compensation |
— | |||||||||||||||||||||||
| Other comprehensive loss |
— | ( |
) | ( |
) | |||||||||||||||||||
| Dividends |
— | ( |
) | ( |
) | |||||||||||||||||||
| Net income |
— | |||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Balance—June 30, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
For the Three Months Ended June 30, 2021 |
||||||||||||||||||||||||
Common Stock |
Additional Paid-In Capital |
Accumulated Other |
Accumulated Deficit |
Total |
||||||||||||||||||||
Shares Issued |
Par Value |
Comprehensive Income |
||||||||||||||||||||||
| Balance—April 1, 2021 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Restricted stock issued and vesting of restricted stock units, net |
( |
) | ( |
) | ||||||||||||||||||||
| Shares repurchased |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| Exercise of stock options, net |
||||||||||||||||||||||||
| Stock-based compensation |
— | |||||||||||||||||||||||
| Other comprehensive loss |
— | |||||||||||||||||||||||
| Dividends |
— | ( |
) | ( |
) | |||||||||||||||||||
| Net income |
— | |||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Balance—June 30, 2021 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
7
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity (Continued)
(In Thousands)
(Unaudited)
For the Six Months Ended June 30, 2022 |
||||||||||||||||||||||||
Common Stock |
Additional Paid-In Capital |
Accumulated Other |
Accumulated Deficit |
Total |
||||||||||||||||||||
Shares Issued |
Par Value |
Comprehensive Income |
||||||||||||||||||||||
| Balance—January 1, 2022 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Restricted stock issued and vesting of restricted stock units, net |
( |
) | ||||||||||||||||||||||
| Shares repurchased |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| Stock-based compensation |
— | |||||||||||||||||||||||
| Other comprehensive loss |
— | ( |
) | ( |
) | |||||||||||||||||||
| Dividends |
— | ( |
) | ( |
) | |||||||||||||||||||
| Net loss |
— | ( |
) | ( |
) | |||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Balance—June 30, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
For the Six Months Ended June 30, 2021 |
||||||||||||||||||||||||
Common Stock |
Additional Paid-In Capital |
Accumulated Other |
Accumulated Deficit |
Total |
||||||||||||||||||||
Shares Issued |
Par Value |
Comprehensive Income |
||||||||||||||||||||||
| Balance—January 1, 2021 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Reclassification of equity component related to convertible notes, net deferred taxes of $ 2020-06 (Note 10 ) |
— | ( |
) | ( |
) | |||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Balance—January 1, 2021 (as adjusted) |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Restricted stock issued and vesting of restricted stock units, net |
( |
) | ||||||||||||||||||||||
| Shares repurchased |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| Exercise of stock options, net |
||||||||||||||||||||||||
| Stock-based compensation |
— | |||||||||||||||||||||||
| Other comprehensive income |
— | |||||||||||||||||||||||
| Dividends |
— | ( |
) | ( |
) | |||||||||||||||||||
| Net income |
— | |||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Balance—June 30, 2021 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
8
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Six Months Ended June 30, |
||||||||
2022 |
2021 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net (loss)/income |
$ | ( |
) | $ | ||||
| Adjustments to reconcile net (loss)/income to net cash provided by operating activities: |
||||||||
| Loss/(gain) on revaluation of deferred consideration—gold payments |
( |
) | ||||||
| Advisory and license fees paid in gold, other precious metals and cryptocurrency |
( |
) | ( |
) | ||||
| Deferred income taxes |
||||||||
| Losses on securities owned, at fair value |
||||||||
| Contractual gold payments |
||||||||
| Stock-based compensation |
||||||||
| Amortization of issuance costs—convertible notes |
||||||||
| Amortization of right of use asset |
||||||||
| Depreciation and amortization |
||||||||
| Impairments |
||||||||
| Other |
( |
) | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
( |
) | ( |
) | ||||
| Prepaid expenses |
( |
) | ( |
) | ||||
| Gold and other precious metals |
||||||||
| Other assets |
( |
) | ( |
) | ||||
| Intangibles—software development |
( |
) | ||||||
| Fund management and administration payable |
( |
) | ||||||
| Compensation and benefits payable |
( |
) | ( |
) | ||||
| Income taxes payable |
( |
) | ( |
) | ||||
| Operating lease liabilities |
( |
) | ( |
) | ||||
| Accounts payable and other liabilities |
||||||||
| |
|
|
|
|||||
| Net cash provided by operating activities |
||||||||
| |
|
|
|
|||||
| Cash flows from investing activities: |
||||||||
| Purchase of securities owned, at fair value |
( |
) | ( |
) | ||||
| Purchase of investments |
( |
) | ( |
) | ||||
| Purchase of fixed assets |
( |
) | ( |
) | ||||
| Proceeds from the sale of securities owned, at fair value |
||||||||
| Proceeds from held-to-maturity |
||||||||
| |
|
|
|
|||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Cash flows from financing activities: |
||||||||
| Dividends paid |
( |
) | ( |
) | ||||
| Shares repurchased |
( |
) | ( |
) | ||||
| Convertible notes issuance costs |
( |
) | ||||||
| Proceeds from the issuance of convertible notes |
||||||||
| Proceeds from exercise of stock options |
||||||||
| |
|
|
|
|||||
| Net cash (used in)/provided by financing activities |
( |
) | ||||||
| |
|
|
|
|||||
| (Decrease)/increase in cash flow due to changes in foreign exchange rate |
( |
) | ||||||
| |
|
|
|
|||||
| Net (decrease)/increase in cash and cash equivalents |
( |
) | ||||||
| Cash and cash equivalents—beginning of year |
||||||||
| |
|
|
|
|||||
| Cash and cash equivalents—end of period |
$ | $ | ||||||
| |
|
|
|
|||||
| Supplemental disclosure of cash flow information: |
||||||||
| Cash paid for income taxes |
$ | $ | ||||||
| |
|
|
|
|||||
| Cash paid for interest |
$ | $ | ||||||
| |
|
|
|
|||||
NON-CASH
ACTIVITIES On January 1, 2021, the Company reclassified the equity component related to the convertible notes, net of deferred taxes, reducing accumulated deficit by $616 4,088 , reducing additional paid in capital by $3,682 and reducing deferred tax liabilities by $1,022 , upon the implementation of Accounting Standards Update (“ASU”) (Note
2020-06,
Debt – Debt with Conversion and Other Options
10
). The accompanying notes are an integral part of these consolidated financial statements
(See Note 2 for reclassifications made to certain amounts previously reported)
9
WisdomTree Investments, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In Thousands, Except Share and Per Share Amounts)
1. Organization and Description of Business
WisdomTree Investments, Inc., through its global subsidiaries (collectively, “WisdomTree” or the “Company”), is an exchange-traded product (“ETP”) sponsor and asset manager headquartered in New York. WisdomTree offers ETPs covering equity, commodity, fixed income, leveraged and inverse, currency, cryptocurrency and alternative strategies. The Company has the following wholly-owned operating subsidiaries:
| • | WisdomTree Asset Management, Inc. non-consolidated Delaware statutory trust registered with the SEC as an open-end management investment company. The Company has licensed to WTT the use of certain of its own indexes on an exclusive basis for the WisdomTree ETFs in the U.S. |
| • | WisdomTree Management Jersey Limited leveraged-and-inverse |
| • | WisdomTree Multi Asset Management Limited non-consolidated public limited company domiciled in Ireland. |
| • | WisdomTree Management Limited non-consolidated public limited company domiciled in Ireland. |
| • | WisdomTree UK Limited |
| • | WisdomTree Europe Limited |
| • | WisdomTree Ireland Limited |
| • | WisdomTree Digital Commodity Services, LLC |
| • | WisdomTree Digital Management, Inc. SEC-registered investment adviser and will provide investment advisory and other management services to blockchain-enabled mutuals hares are secondarily recorded on a blockchain. |
• |
WisdomTree Digital Movement, Inc |
• |
WisdomTree Securities, Inc. |
2. Significant Accounting Policies
Basis of Presentation
These consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and in the opinion of management reflect all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of financial condition, results of operations, and cash flows for the periods presented. The consolidated financial statements include the accounts of the Company’s wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
10
Immaterial Correction of an Error – Consolidated Statements of Operations
The presentation of the amounts collected on behalf of third parties of $1,828 and $3,402 for the three and six months ended June 30, 2021 have been revised due to an immaterial error correction. These amounts were originally recorded as advisory fee revenue and fund management and administration expense while no such amounts should have been recorded in the Consolidated Statements of Operations. The following table summarizes these revisions, which had no effect on previously reported net income:
Three Months Ended June 30, 2021 |
Six Months Ended June 30, 2021 |
|||||||
| Operating Revenues : |
|
|
|
|
|
|
|
|
| Advisory fees (previously reported) |
$ | $ | ||||||
| Amounts collected on behalf of third parties |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Advisory fees (as corrected) |
$ | $ | ||||||
| |
|
|
|
|||||
| Total revenues (previously reported) |
$ | $ | ||||||
| Amounts collected on behalf of third parties |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Total revenues (as corrected) |
$ | $ | ||||||
| |
|
|
|
|||||
| Operating Expenses: |
||||||||
| Fund management and administration (previously reported) |
$ | $ | ||||||
| Amounts collected on behalf of third parties |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Fund management and administration (as corrected) |
$ | $ | ||||||
| |
|
|
|
|||||
| Total operating expenses (previously reported) |
$ | $ | ||||||
| Amounts collected on behalf of third parties |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Total operating expenses (as corrected) |
$ | $ | ||||||
| |
|
|
|
|||||
Reclassifications—Consolidated Statements of Cash Flows
Cash flows from purchasing securities owned, at fair value of $29,819 and selling securities owned, at fair value of $5,212 during the six months ended June 30, 2021 that were not acquired specifically for resale or associated with the Company’s business activities have been reclassified from operating activities to investing activities to conform to the current year’s presentation in the Consolidated Statements of Cash Flows.
The following table summarizes these reclassifications for the six months ended June 30, 2021:
Six Months Ended June 30, 2021 |
||||
| Consolidated Statements of Cash Flows : |
|
|
|
|
| Cash Flows from Operating Activities |
||||
| Net cash used in operating activities (previously reported) |
$ | ( |
) | |
| Reclassification of net cash flows from securities purchases and sales |
||||
| |
|
|||
| Net cash provided by operating activities (currently reported) |
$ | |||
| |
|
|||
| Cash Flows from Investing Activities |
||||
| Net cash used in investing activities (previously reported) |
$ | ( |
) | |
| Reclassification of purchases of securities owned, at fair value |
( |
) | ||
| Reclassification of proceeds from the sale of securities owned, at fair value |
||||
| |
|
|||
| Net cash used in investing activities (currently reported) |
$ | ( |
) | |
| |
|
|||
11
Consolidation
The Company consolidates entities in which it has a controlling financial interest. The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity (“VOE”) or a variable interest entity (“VIE”). The usual condition for a controlling financial interest in a VOE is ownership of a majority voting interest. If the Company has a majority voting interest in a VOE, the entity is consolidated. The Company has a controlling financial interest in a VIE when the Company has a variable interest that provides it with (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
The Company reassesses its evaluation of whether an entity is a VOE or VIE when certain reconsideration events occur.
Segment and Geographic Information
The Company, through its subsidiaries in the U.S. and Europe, conducts business as a single operating segment as an ETP sponsor and asset manager which is based upon the Company’s current organizational and management structure, as well as information used by the chief operating decision maker to allocate resources and other factors.
Foreign Currency Translation
Assets and liabilities of subsidiaries whose functional currency is not the U.S. dollar are translated based on the end of period exchange rates from local currency to U.S. dollars. Results of operations are translated at the average exchange rates in effect during the period. The impact of the foreign currency translation adjustment is included in the Consolidated Statements of Comprehensive Income/(Loss) as a component of other comprehensive (loss)/income.
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet dates and the reported amounts of revenues and expenses for the periods presented. Actual results could differ materially from those estimates.
Revenue Recognition
The Company earns substantially all of its revenue in the form of advisory fees from its ETPs and recognizes this revenue over time, as the performance obligation is satisfied. Advisory fees are based on a percentage of the ETPs’ average daily net assets. Progress is measured using the practical expedient under the output method resulting in the recognition of revenue in the amount for which the Company has a right to invoice.
Contractual Gold Payments
Contractual gold payments are measured and paid monthly based upon the average daily spot price of gold (Note 9).
Marketing and Advertising
Marketing and advertising costs, including media advertising and production costs, are expensed when incurred.
Depreciation and Amortization
Depreciation and amortization is provided for using the straight-line method over the estimated useful lives of the related assets as follows:
Equipment |
|||||
Internally-developed software |
The assets listed above are recorded at cost less accumulated depreciation and amortization.
Stock-Based Awards
Accounting for stock-based compensation requires the measurement and recognition of compensation expense for all equity awards based on estimated fair values. Stock-based compensation is measured based on the grant-date fair value of the award and is amortized over the relevant service period. Forfeitures are recognized when they occur.
12
Third-Party Distribution Fees
The Company pays a percentage of its advisory fee revenues based on incremental growth in assets under management (“AUM”), subject to caps or minimums, to marketing agents to sell WisdomTree ETFs and for including WisdomTree ETFs on third-party customer platforms and recognizes these expenses as incurred.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be classified as cash equivalents. The Company maintains deposits with financial institutions in an amount that is in excess of federally insured limits.
Accounts Receivable
Accounts receivable are customer and other obligations due under normal trade terms. The Company measures credit losses, if any, by applying historical loss rates, adjusted for current conditions and reasonable and supportable forecasts to amounts outstanding using the aging method.
Impairment of Long-Lived Assets
The Company performs a review for the impairment of long-lived assets when events or changes in circumstances indicate that the estimated undiscounted future cash flows expected to be generated by the assets are less than their carrying amounts or when other events occur which may indicate that the carrying amount of an asset may not be recoverable.
Securities Owned and Securities Sold, but not yet Purchased (at fair value)
Securities owned and securities sold, but not yet purchased are securities classified as either trading or (“AFS”). These securities are recorded on their trade date and are measured at fair value. All equity securities are classified by the Company as trading. Debt securities are classified based primarily on the Company’s intent to hold or sell the security. Changes in the fair value of debt securities classified as trading and AFS are reported in other income and other comprehensive income, respectively, in the period the change occurs. Debt securities classified as AFS are assessed for impairment on a quarterly basis and an estimate for credit loss is provided when the fair value of the AFS debt security is below its amortized cost basis. Credit-related impairments are recognized in earnings with a corresponding adjustment to the security’s amortized cost basis if the Company intends to sell the impaired AFS debt security or it is more likely than not the Company will be required to sell the security before recovering its amortized cost basis. Other credit-related impairments are recognized as an allowance with a corresponding adjustment to earnings. Impairments resulting from noncredit-related factors are recognized in other comprehensive income. Amounts recorded in other comprehensive income are reclassified into earnings upon sale of the AFS debt security using the specific identification method.
available-for-sale
Securities
Held-to-Maturity
The Company accounts for certain of its securities as on a trade date basis, which are recorded at amortized cost. For securities, the Company has the intent and ability to hold these securities to maturity and it is not securities are placed on securities placed on
held-to-maturity
held-to-maturity
more-likely-than-not
that the Company will be required to sell these securities before recovery of their amortized cost bases, which may be maturity. Held-to-maturity
non-accrual
status when the Company is in receipt of information indicating collection of interest is doubtful. Cash received on held-to-maturity
non-accrual
status is recognized on a cash basis as interest income if and when received. The Company reviews its portfolio of securities for impairment on a quarterly basis, recognizing an allowance, if any, by applying an estimated loss rate after consideration for the nature of collateral securing the financial asset as well as potential future changes in collateral values and historical loss information for financial assets secured with similar collateral.
held-to-maturity
Investments in pass-through government-sponsored enterprises (“GSEs”) are determined to have an estimated loss rate of zero due to an implicit U.S. government guarantee.
Investments
The Company accounts for equity investments that do not have a readily determinable fair value under the measurement alternative prescribed in Accounting Standards Codification (“ASC”) Topic 321, (“ASC 321”), to the extent such investments are not subject to consolidation or the equity method. Under the measurement alternative, these financial instruments are carried at cost, less any impairment (assessed quarterly), plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. In addition, income is recognized when dividends are received only to the extent they are distributed from net accumulated earnings of the investee. Otherwise, such distributions are considered returns of investment and are recorded as a reduction of the cost of the investment.
Investments – Equity Securities
Investments in debt instruments are accounted for at fair value, with changes in fair value reported in other income.
13
Goodwill
Goodwill is the excess of the purchase price over the fair values of the identifiable net assets at the acquisition date. The Company tests goodwill for impairment at least annually and at the time of a triggering event requiring
re-evaluation,
if one were to occur. Goodwill is considered impaired when the estimated fair value of the reporting unit that was allocated the goodwill is less than its carrying value. If the estimated fair value of such reporting unit is less than its carrying value, goodwill impairment is recognized based on that difference, not to exceed the carrying amount of goodwill. A reporting unit is an operating segment or a component of an operating segment provided that the component constitutes a business for which discrete financial information is available and management regularly reviews the operating results of that component. Goodwill is allocated to the Company’s U.S. business and European business components. For impairment testing purposes, these components are aggregated as a single reporting unit as they fall under the same operating segment and have similar economic characteristics.
Goodwill is assessed for impairment annually on November 30
th
. When performing its goodwill impairment test, the Company considers a qualitative assessment, when appropriate, and a quantitative assessment using the market approach and its market capitalization when determining the fair value of the reporting unit. Intangible Assets
Indefinite-lived intangible assets are tested for impairment at least annually and are also reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Indefinite-lived intangible assets are impaired if their estimated fair values are less than their carrying values.
Finite-lived intangible assets, if any, are amortized over their estimated useful life, which is the period over which the assets are expected to contribute directly or indirectly to the future cash flows of the Company. These intangible assets are tested for impairment at the time of a triggering event, if one were to occur. Finite-lived intangible assets may be impaired when the estimated undiscounted future cash flows generated from the assets are less than their carrying amounts.
The Company may rely on a qualitative assessment when performing its intangible asset impairment test. Otherwise, the impairment evaluation is performed at the lowest level of reasonably identifiable cash flows independent of other assets. The annual impairment testing date for all of the Company’s intangible assets is November 30
th
. Software Development Costs
Software development costs incurred after the preliminary project stage is complete are capitalized if it is probable that the project will be completed and the software will be used as intended. Capitalized costs consist of employee compensation costs and fees paid to third parties who are directly involved in the application development efforts. Capitalized costs are amortized over the estimated useful life of the software on a straight-line basis and are included in depreciation and amortization in the Consolidated Statements of Operations. Once the application development stage is complete, additional costs are expensed as incurred.
Leases
The Company accounts for its lease obligations in accordance with ASC Topic 842, (“ASC 842”), which requires the recognition of both (i) a lease liability equal to the present value of the remaining lease payments and (ii) an offsetting asset. The remaining lease payments are discounted using the rate implicit in the lease, if known, or otherwise the Company’s incremental borrowing rate. After lease commencement, assets are assessed for impairment and otherwise are amortized over the remaining lease term on a straight-line basis. These recognition requirements are not applied to short-term leases which are those with a lease term of 12 months or less. Instead, lease payments associated with short-term leases are recognized as an expense on a straight-line basis over the lease term.
Leases
right-of-use
right-of-use
ASC 842 also provides a practical expedient which allows for consideration in a contract to be accounted for as a single lease component rather than allocated between lease and
non-lease
components. The Company has elected to apply this practical expedient to all lease contracts, where applicable. Deferred Consideration – Gold Payments
Deferred consideration represents the present value of an obligation to pay gold to a third party into perpetuity and is measured using forward-looking gold prices observed on the CMX exchange, a selected discount rate and perpetual growth rate (Note 9). Changes in the fair value of this obligation are reported as (loss)/gain on revaluation of deferred consideration – gold payments in the Consolidated Statements of Operations.
14
Convertible Notes
Convertible notes are carried at amortized cost, net of issuance costs. In accordance with Accounting Standards Update (“ASU”) , the Company accounts for convertible instruments as a single liability (applicable to the convertible notes) or equity with no separate accounting for embedded conversion features unless the conversion feature meets the criteria for accounting under the substantial premium model or does not qualify for a derivative scope exception. Interest expense is recognized using the effective interest method and includes amortization of issuance costs over the life of the debt.
2020-06
Debt – Debt with Conversion and Other Options
Contingencies
The Company may be subject to reviews, inspections and investigations by regulatory authorities as well as legal proceedings arising in the ordinary course of business. The Company evaluates the likelihood of an unfavorable outcome of all legal or regulatory proceedings to which it is a party and accrues a loss contingency when the loss is probable and reasonably estimable.
Contingent Payments
The Company recognizes a gain on contingent payments when the contingency is resolved and the gain is realized.
Earnings per Share
Basic earnings per share (“EPS”) is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Net income available to common stockholders represents net income of the Company reduced by an allocation of earnings to participating securities. The Series A
non-voting
convertible preferred stock (Note 12) and unvested share-based payment awards that contain non-forfeitable
rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of EPS pursuant to the two-class
method. Share-based payment awards that do not contain such rights are not deemed participating securities and are included in diluted shares outstanding (if dilutive). Diluted EPS is calculated under the treasury stock method and the
two-class
method. The calculation that results in the lowest diluted EPS amount for the common stock is reported in the Company’s consolidated financial statements. The treasury stock method includes the dilutive effect of potential common shares including unvested stock-based awards, the Series A non-voting
convertible preferred stock and the convertible notes, if any. Potential common shares associated with the Series A non-voting
convertible preferred stock and the convertible notes are computed under the if-converted
method. Potential common shares associated with the conversion option embedded in the convertible notes are dilutive when the Company’s average stock price exceeds the conversion price. Income Taxes
The Company accounts for income taxes using the liability method, which requires the determination of deferred tax assets and liabilities based on the differences between the financial and tax bases of assets and liabilities using the enacted tax rates in effect for the year in which differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is
more-likely-than-not
that some portion or all the deferred tax assets will not be realized. Tax positions are evaluated utilizing a
two-step
process. The Company first determines whether any of its tax positions are more-likely-than-not
to be sustained upon examination, based solely on the technical merits of the position. Once it is determined that a position meets this recognition threshold, the position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company records interest expense and penalties related to tax expenses as income tax expense. The Global Intangible
Low-Taxed
Income (“GILTI”) provisions of the Tax Reform Act requires the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. An accounting policy election is available to either account for the tax effects of GILTI in the period that is subject to such taxes or to provide deferred taxes for book and tax basis differences that upon reversal may be subject to such taxes. The Company accounts for the tax effects of these provisions in the period that is subject to such tax. Non-income
based taxes are recorded as part of other liabilities and other expenses.3. Cash and Cash Equivalents
Of the total cash and cash equivalents of $109,736 and $140,709 at June 30, 2022 and December 31, 2021, respectively, $107,666 and $127,328 were held at two financial institutions. At June 30, 2022 and December 31, 2021, cash equivalents were approximately $2,001 and $11,488 , respectively.
Certain of the Company’s international subsidiaries are required to maintain a minimum level of regulatory capital, which was $25,450 and $12,320 at June 30, 2022 and December 31, 2021, respectively. These requirements are generally satisfied by cash on hand.
15
4. Fair Value Measurements
The fair value of financial instruments is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., “the exit price”) in an orderly transaction between market participants at the measurement date. ASC 820, , establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs reflect assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the transparency of inputs as follows:
Fair Value Measurement
Level 1 – Quoted prices for identical instruments in active markets.
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 – Instruments whose significant drivers are unobservable.
The availability of observable inputs can vary from product to product and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by management in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
The tables below summarize the categorization of the Company’s assets and liabilities measured at fair value. During the three and six months ended June 30, 2022 and 2021 there were no transfers between Levels 2 and 3.
June 30, 2022 |
||||||||||||||||
Total |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||
| Assets: |
||||||||||||||||
| Recurring fair value measurements: |
||||||||||||||||
| Cash equivalents |
$ | $ | $ | $ | ||||||||||||
| Securities owned, at fair value |
||||||||||||||||
| ETFs |
||||||||||||||||
| Pass-through GSEs |
||||||||||||||||
| Corporate bonds |
||||||||||||||||
| Investments in Convertible Notes |
||||||||||||||||
| Securrency, Inc. – convertible note 7 ) |
||||||||||||||||
| Fnality International Limited – convertible note (Note 7 ) |
||||||||||||||||
| Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
| Non-recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Onramp Invest, Inc. – preferred stock (Note 7 )(1) |
||||||||||||||||