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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 September 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
 
WisdomTree Investments, Inc.
(Exact name of registrant as specified in its charter)
 
 
Delaware
 
13-3487784
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
250 West 34
th
Street
3
rd
Floor
New York, New York
 
10119
(Address of principal executive offices)
 
(Zip Code)
212-801-2080
(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
Common Stock, $0.01 par value
 
WETF
 
The NASDAQ Stock Market LLC
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
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).    ☒  Yes    ☐  No
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.
 
Large accelerated filer      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 October 24, 2022, there were 146,518,506 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 September 30, 2022

TABLE OF CONTENTS

 

PART I:

   FINANCIAL INFORMATION      4  

ITEM 1.

   Financial Statements      4  

ITEM 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      33  

ITEM 3.

   Quantitative and Qualitative Disclosures About Market Risk      51  

ITEM 4.

   Controls and Procedures      52  

PART II:

   OTHER INFORMATION      52  

ITEM 1.

   Legal Proceedings      52  

ITEM 1A.

   Risk Factors      52  

ITEM 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      52  

ITEM 3.

   Default Upon Senior Securities      53  

ITEM 4.

   Mine Safety Disclosures      53  

ITEM 5.

   Other Information      53  

ITEM 6.

   Exhibits      54  

Unless otherwise indicated, references to “the Company,” “we,” “us,” “our” and “WisdomTree” mean WisdomTree Investments, Inc. and its subsidiaries.

WisdomTree®, WisdomTree Prime 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


P5DP5DP5DP10D
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, and Quarterly Report on Form
10-Q
for the quarter ended June 30, 2022. 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 strategy relating to digital assets and blockchain-enabled financial services, 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

Table of Contents
PART I: FINANCIAL INFORMATION
 
ITEM 1.
FINANCIAL STATEMENTS
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Per Share Amounts)
 
    
  September 30,  

2022
    
  December 31,  
2021
 
    
 
(unaudited)
        
Assets
                 
Current assets:
                 
Cash and cash equivalents
    $ 132,700           $ 140,709   
Securities owned, at fair value (including $12,387 and $18,526 invested in WisdomTree ETFs at September 30, 2022 and December 31, 2021, respectively)
     125,110            127,166   
Accounts receivable (including $21,222 and $25,628 due from related parties at September 30, 2022 and December 31, 2021, respectively)
     25,306            31,864   
Prepaid expenses
     6,035            3,952   
Other current assets
     332            276   
  
 
 
 
  
 
 
 
Total current assets
     289,483            303,967   
Fixed assets, net
     575            557   
Indemnification receivable (Note 19)
     1,220            21,925   
Securities
held-to-maturity
     267            308   
Deferred tax assets, net
     6,947            8,881   
Investments (Note 7)
     26,339            14,238   
Right of use assets—operating leases (Note 12)
     1,720            520   
Goodwill (Note 21)
     85,856            85,856   
Intangible assets (Note 21)
     603,204            601,247   
Other noncurrent assets
     766            361   
  
 
 
 
  
 
 
 
Total assets
    $ 1,016,377           $ 1,037,860   
  
 
 
 
  
 
 
 
Liabilities and stockholders’ equity
  
  
Liabilities
  
  
Current liabilities:
  
  
Convertible notes—current (Note 10)
    $ 173,760           $    
Fund management and administration payable
     21,466            20,661   
Compensation and benefits payable
     26,455            32,782   
Deferred consideration—gold payments (Note 9)
     15,162            16,739   
Operating lease liabilities (Note 12)
     1,186            209   
Income taxes payable
     2,094            3,979   
Accounts payable and other liabilities
     13,122            9,297   
  
 
 
 
  
 
 
 
Total current liabilities
     253,245            83,667   
Convertible notes—long term (Note 10)
     146,805            318,624   
Deferred consideration—gold payments (Note 9)
     149,595            211,323   
Operating lease liabilities (Note 12)
     554            328   
Other noncurrent liabilities (Note 19)
     1,220            21,925   
  
 
 
 
  
 
 
 
Total liabilities
     551,419            635,867   
Preferred stock—Series A
Non-Voting
Convertible, par value $0.01; 14.750 shares authorized, issued and outstanding; redemption value of $73,594 and $90,741 at September 30, 2022 and December 31, 2021, respectively) (Note 11)
     132,569            132,569   
 
 
 
 
 
 
 
 
 
Contingencies (Note 13)
                 
Stockholders’ equity
                 
Preferred stock, par value $0.01; 2,000 shares authorized:
                      
Common stock, par value $0.01; 400,000 shares authorized; issued and outstanding: 146,520 and 145,107 at September 30, 2022 and December 31, 2021, respectively
     1,465            1,451   
Additional
paid-in
capital
     289,284            289,736   
Accumulated other comprehensive (loss) income
     (5,209)          682   
Retained earnings/(accumulated deficit)
     46,849            (22,445)  
 
 
 
 
 
 
 
 
 
Total stockholders’ equity
     332,389            269,424   
 
 
 
 
 
 
 
 
 
Total liabilities and stockholders’ equity
    $     1,016,377           $     1,037,860   
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements
 
4

Table of Contents
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
 
 
    
Three Months Ended

September 30,
  
Nine Months Ended

September 30,
 
    
2022
  
2021
  
2022
  
2021
Operating Revenues:
    
  
  
  
Advisory fees
    $ 70,616       $ 76,400       $ 222,719       $ 220,611  
Other income
     1,798        1,712        5,316        4,532  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total revenues
     72,414        78,112        228,035        225,143  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses:
                                   
Compensation and benefits
     23,714        22,027        73,066        64,985  
Fund management and administration
     16,285        15,181        47,855        43,495  
Marketing and advertising
     3,145        2,925        11,062        9,525  
Sales and business development
     2,724        2,935        8,464        7,239  
Contractual gold payments (Note 9)
     4,105        4,250        13,001        12,834  
Professional fees
     2,367        1,583        11,134        5,517  
Occupancy, communications and equipment
     986        1,163        2,788        3,904  
Depreciation and amortization
     58        185        158        693  
Third-party distribution fees
     1,833        1,873        5,863        5,346  
Other
     2,324        1,787        6,278        5,110  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total operating expenses
     57,541        53,909        179,669        158,648  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income
     14,873        24,203        48,366        66,495  
Other Income/(Expenses):
                                   
Interest expense
     (3,734 )      (3,729 )      (11,199 )      (8,592 )
Gain on revaluation of deferred consideration—gold payments (Note 9)
     77,895        1,737        63,188        5,066  
Interest income
     811        689        2,375        1,145  
Impairments (Notes 8, 12 and 23)
            (15,853 )             (16,156 )
Other losses, net
     (5,289 )
 
     (714 )
 
     (34,470 )
 
     (6,558 )
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
     84,556        6,333        68,260        41,400  
Income tax expense/(benefit)
     3,327        500        (10,713 )      2,790  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
    $ 81,229       $ 5,833       $ 78,973       $ 38,610  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings per share—basic
    $ 0.50       $ 0.04       $ 0.49       $ 0.24  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings per share—diluted
    $ 0.50       $ 0.04       $ 0.49       $ 0.24  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average common shares—basic
     143,120          142,070          142,984          144,445  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average common shares—diluted
         158,953        159,213        158,741        161,706  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends declared per common share
    $ 0.03       $ 0.03       $ 0.09       $ 0.09  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements
 
5

Table of Contents
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In Thousands)
(Unaudited)
 
    
Three Months Ended

September 30,
    
Nine Months Ended

September 30,
 
    
2022
    
2021
    
2022
    
2021
 
Net income
    $ 81,229         $ 5,833         $ 78,973          $ 38,610     
Other comprehensive loss
                                   
Foreign currency translation adjustment, net of income taxes
     (3,684        (302        (5,891)          (249)    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive loss
     (3,684        (302        (5,891)          (249)    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
    $     77,545         $     5,531         $   73,082          $   38,361     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements
 
6

Table of Contents
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
(In Thousands)
(Unaudited)
 
 
    
For the Three Months Ended September 30, 2022
 
    
 
Common Stock
    
Additional
Paid-In

Capital
  
Accumulated
Other

Comprehensive
Income
  
(Accumulated

Deficit)/Retained
Earnings
  
Total
 
    
Shares
Issued
  
Par
Value
Balance—July 1, 2022
 
 
  146,511       $ 1,465       $ 286,854       $ (1,525 )     $ (29,538 )     $ 257,256  
Restricted stock issued and vesting of restricted stock units,
net
  
 
 
  13                                     
Shares repurchased
     (4 )
 
            (24 )
 
                   (24 )
 
Stock-based compensation
     —                 2,454                      2,454  
Other comprehensive loss
     —                        (3,684 )             (3,684 )
Dividends
     —                               (4,842
)

     (4,842 )
Net income
     —                               81,229        81,229  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance—September 30, 2022
         146,520       $     1,465       $     289,284       $       (5,209 )     $     46,849       $   332,389  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
    
For the Three Months Ended September 30, 2021
 
    
 
Common Stock
    
Additional
Paid-In

Capital
    
Accumulated
Other

Comprehensive
Income
    
Accumulated
Deficit
    
Total
 
    
Shares
Issued
    
Par
Value
 
Balance—July 1, 2021
     145,114      $ 1,451      $ 285,002      $ 1,155      $ (29,871 )    $ 257,737  
Restricted stock issued and vesting of restricted stock units,
net
     36                                     
Stock-based compensation
                   2,397                      2,397  
Other comprehensive loss
                          (302 )
 
            (302 )
Dividends
                                 (4,797
)
 
     (4,797 )
Net income
                                 5,833        5,833  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance—September 30, 2021
         145,150       $   1,451       $   287,399       $       853       $     (28,835 )    $   260,868  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements
 
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WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity (Continued)
(In Thousands)
(Unaudited)
 
 
    
For the Nine Months Ended September 30, 2022
 
    
 
Common Stock
  
Additional
Paid-In

Capital
  
Accumulated
Other

Comprehensive
Income
  
(Accumulated
Deficit)/Retained
Earnings
  
Total
 
    
Shares
Issued
  
Par
Value
Balance—January 1, 2022
     145,107      $ 1,451      $ 289,736      $ 682      $ (22,445 )
 
 
 
 
$ 269,424  
Restricted stock issued and vesting of restricted stock units, net
 
 
 
  2,006        20        (20 )                     
Shares repurchased
     (593 )
 
     (6 )
 
     (3,412 )                    (3,418 )
 
Stock-based compensation
                   7,822                      7,822  
Other comprehensive loss
                          (5,891 )
 
            (5,891 )
Dividends
                   (4,842 )
 
            (9,679
)

     (14,521 )
Net income
                                 78,973        78,973  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance—September 30, 2022
         146,520       $ 1,465       $   289,284       $     (5,209 )     $     46,849       $ 332,389  
    
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
    
For the Nine Months Ended September 30, 2021
 
    
 
Common Stock
  
Additional
Paid-In

Capital
  
Accumulated
Other

Comprehensive
Income
  
Accumulated
Deficit
  
Total
 
    
Shares
Issued
  
Par
Value
Balance—January 1, 2021
     148,716      $ 1,487      $ 317,075       $ 1,102      $ (53,399 )    $ 266,265  
Reclassification of equity component related to convertible
notes, net deferred taxes of $1,022, upon the implementation
of Accounting Standards Update
2020-06
(Note 10)
                   (3,682 )             616        (3,066 )
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance—January 1, 2021 (as adjusted)
     148,716      $ 1,487      $ 313,393       $ 1,102      $ (52,783 )    $ 263,199  
Restricted stock issued and vesting of restricted stock units, net
     1,412        13        (13 )                         
Shares repurchased
     (5,121 )      (51 )      (34,455 )                    (34,506 )
Exercise of stock options, net
     143        2        813                      815  
Stock-based compensation
                   7,661                      7,661  
Other comprehensive loss
                          (249 )             (249 )
Dividends
                                     (14,662
)
     (14,662 )
Net income
                                 38,610        38,610  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance—September 30, 2021
         145,150       $   1,451       $ 287,399       $             853       $     (28,835 )     $   260,868  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements
 
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Table of Contents
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
 
 
  
Nine Months Ended

September 30,
 
  
        2022        
  
        2021        
Cash flows from operating activities:
  
  
Net income
    $ 78,973       $ 38,610  
Adjustments to reconcile net income to net cash provided by operating activities:
                 
Gain on revaluation of deferred consideration—gold payments
     (63,188 )
 
     (5,066 )
 
Advisory and license fees paid in gold, other precious metals and cryptocurrency
     (44,886 )      (57,617 )
Losses on securities owned, at fair value
     15,633        2,099  
Contractual gold payments
     13,001        12,834  
Stock-based compensation
     7,822        7,661  
Deferred income taxes
     2,233        1,515  
Amortization of issuance costs—convertible notes
     1,941        1,542  
Amortization of right of use asset
     648        1,860  
Depreciation and amortization
     158        693  
Impairments
            16,156  
Gain on sale—Canadian ETF business, including remeasurement of contingent consideration
            (787 )
Other
     (223 )      (369 )
Changes in operating assets and liabilities:
                 
Accounts receivable
     4,076        (1,273 )
Prepaid expenses
     (2,356 )      (1,888 )
Gold and other precious metals
     33,598        44,006  
Other assets
     (503 )      (315 )
Intangibles—software development
     (1,958 )       
Fund management and administration payable
     1,369        2,868  
Compensation and benefits payable
     (4,990 )      1,756  
Income taxes payable
     (1,822 )      (1,050 )
Operating lease liabilities
     (644 )      (15,462 )
Accounts payable and other liabilities
     4,231        2,336  
  
 
 
 
  
 
 
 
Net cash provided by operating activities
     43,113        50,109  
 
 
 
 
 
 
 
 
 
Cash flows from investing activities:
                 
Purchase of securities owned, at fair value
     (41,240 )      (97,570 )
Purchase of investments
     (11,863 )      (5,750 )
Purchase of fixed assets
     (211 )      (237 )
Proceeds from the sale of securities owned, at fair value
     27,650        10,976  
Proceeds from
held-to-maturity
securities maturing or called prior to maturity
     38        114  
 
 
 
 
 
 
 
 
 
Net cash used in investing activities
     (25,626 )      (92,467 )
 
 
 
 
 
 
 
 
 
Cash flows from financing activities:
                 
Dividends paid
     (14,521 )      (14,662 )
Shares repurchased
     (3,418 )      (34,506 )
Convertible notes issuance costs
            (4,297 )
Proceeds from the issuance of convertible notes
            150,000  
Proceeds from exercise of stock options
            815  
 
 
 
 
 
 
 
 
 
Net cash (used in)/provided by financing activities
     (17,939 )      97,350  
 
 
 
 
 
 
 
 
 
Decrease in cash flow due to changes in foreign exchange rate
     (7,557 )      (493 )
 
 
 
 
 
 
 
 
 
Net (decrease)/increase in cash and cash equivalents
     (8,009 )      54,499  
Cash and cash equivalents—beginning of year
     140,709        73,425  
 
 
 
 
 
 
 
 
 
Cash and cash equivalents—end of period
    $ 132,700       $ 127,924  
 
 
 
 
 
 
 
 
 
Supplemental disclosure of cash flow information:
                 
Cash paid for income taxes
    $ 8,769       $ 7,332  
 
 
 
 
 
 
 
 
 
Cash paid for interest
    $             6,156       $             3,719  
 
 
 
 
 
 
 
 
 
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, increasing the carrying value of the convertible notes by $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”)
2020-06,
Debt – Debt with Conversion and Other Options
(Note 10).
The accompanying notes are an integral part of these consolidated financial statements
 
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Table of Contents
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.
is a New York based investment adviser registered with the SEC, providing investment advisory and other management services to the WisdomTree Trust (“WTT”) and WisdomTree exchange-traded funds (“ETFs”). The WisdomTree ETFs are issued in the U.S. by WTT. WTT is a
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
(“ManJer”) is a Jersey based management company providing management services to seven issuers (the “ManJer Issuers”) in respect of the ETPs issued and listed by the ManJer Issuers covering commodity, currency, cryptocurrency and
leveraged-and-inverse
strategies.
 
   
WisdomTree Multi Asset Management Limited
(“WTMAML”) is a Jersey based management company providing management services to WisdomTree Multi Asset Issuer PLC (“WMAI”) in respect of the ETPs issued by WMAI. WMAI is a
non-consolidated
public limited company domiciled in Ireland.
 
   
WisdomTree Management Limited
(“WML”) is an Ireland based management company providing management services to WisdomTree Issuer ICAV (“WTI”) in respect of the WisdomTree UCITS ETFs issued by WTI. WTI is a
non-consolidated
public limited company domiciled in Ireland.
 
   
WisdomTree UK Limited
(“WTUK”) is a U.K. based company registered with the Financial Conduct Authority currently providing distribution and support services to ManJer, WTMAML and WML.
 
   
WisdomTree Europe Limited
is a U.K. based company which is the legacy distributor of the WMAI ETPs and WisdomTree UCITS ETFs. These services are now provided directly by WTUK. WisdomTree Europe Limited is no longer regulated and does not provide any regulated services.
 
   
WisdomTree Ireland Limited
is an Ireland based company authorized by the Central Bank of Ireland providing distribution services to ManJer, WTMAML and WML.
 
   
WisdomTree Digital Commodity Services, LLC
is a New York based company that has been formed to serve as the sponsor of the WisdomTree Bitcoin Trust and WisdomTree Ethereum Trust, each an ETF currently under review with the SEC.
 
   
WisdomTree Digital Management, Inc.
is a New York based company that has been formed to serve as a
SEC-registered
investment adviser and will provide investment advisory and other management services to blockchain-enabled mutual funds whose shares are secondarily recorded on a blockchain.
 
   
WisdomTree Digital Movement, Inc
. is a New York based company that has been formed to operate a money services business registered with the Financial Crimes Enforcement Network (“FinCEN”) and is seeking state money transmitter licenses to operate a platform for the purchase, sale and exchange of digital assets, while also providing digital wallet services to facilitate such activity.
 
   
WisdomTree Securities, Inc.
is a New York based company that has been formed to operate as a limited purpose broker-dealer (i.e., mutual fund retailer) upon registration with the SEC, FINRA and state regulatory authorities.
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.
 
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Table of Contents
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 as a component of other comprehensive loss.
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
     3 to 5 years  
Internally-developed software
     3 years  
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.
 
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Table of Contents
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
available-for-sale
(“AFS”). These securities are recorded on their trade date and are measured at fair value. All equity securities that have readily determinable fair values 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/(expenses) 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.
Securities
Held-to-Maturity
The Company accounts for certain of its securities as
held-to-maturity
on a trade date basis, which are recorded at amortized cost. For
held-to-maturity
securities, the Company has the intent and ability to hold these securities to maturity and it is not
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
securities are placed on
non-accrual
status when the Company is in receipt of information indicating collection of interest is doubtful. Cash received on
held-to-maturity
securities placed on
non-accrual
status is recognized on a cash basis as interest income if and when received.
The Company reviews its portfolio of
held-to-maturity
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.
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,
Investments – Equity Securities
(“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.
 
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Table of Contents
Investments in debt instruments are accounted for at fair value, with changes in fair value reported in other income/(expenses).​​​​​​​
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,
Leases
(“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
right-of-use
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,
right-of-use
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.
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 gain on revaluation of deferred consideration—gold payments in the Consolidated Statements of Operations.
 
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Table of Contents
Convertible Notes
Convertible notes are carried at amortized cost, net of issuance costs. In accordance with Accounting Standards Update (“ASU”)
2020-06
Debt – Debt with Conversion and Other Options
, 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.
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 11) 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 $132,700 and $140,709 at September 30, 2022 and December 31, 2021, respectively, $132,348 and $127,328 were held at two financial institutions. At September 30, 2022 and December 31, 2021, cash equivalents were approximately $284 and $11,488, respectively.
Certain of the Company’s international subsidiaries are required to maintain a minimum level of regulatory capital, which was $23,144 and $12,320 at September 30, 2022 and December 31, 2021, respectively. These requirements are generally satisfied by cash on hand.
 
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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,
Fair Value Measurement
, 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:
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 nine months ended September 30, 2022 and 2021 there were no transfers between Levels 2 and 3.
 
    
September 30, 2022
 
    
Total
    
Level 1
    
Level 2
    
Level 3
 
Assets:
                                   
Recurring fair value measurements:
                                   
Cash equivalents
     $ 284            $ 284          $           $     
Securities owned, at fair value
                                   
ETFs
     12,621            12,621                        
U.S. treasuries
     8,437            8,437                        
Pass-through GSEs
     102,248            23,694          78,554              
Corporate bonds
     1,804                      1,804              
Investments in Convertible Notes
                                   
Securrency, Inc.—convertible note
(Note 7)
     5,844                                5,844    
Fnality International Limited—convertible note (Note 7)
     6,195                                6,195    
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
     $ 137,433            $   45,036          $   80,358          $ 12,039    
    
 
 
    
 
 
    
 
 
    
 
 
 
                                     
Non-recurring
fair value measurements:
                                   
Onramp Invest, Inc.—preferred stock (Note 7)
(1)
     $ 312            $           $           $ 312    
    
 
 
    
 
 
    
 
 
    
 
 
 
Liabilities:
                                   
Recurring fair value measurements:
                                   
Deferred consideration (Note 9)
     $   164,757            $           $           $ 164,757    
    
 
 
    
 
 
    
 
 
    
 
 
 
 
(1)
Fair value determined on May 10, 2022 (Note 7).
 
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December 31, 2021
 
  
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
  
     
 
     
 
     
 
     
Recurring fair value measurements:
                                   
Cash equivalents
     $ 11,488          $ 11,488         $          $     
Securities owned, at fair value
                                   
ETFs
     18,812          18,812                      
Pass-through GSEs
     106,245          24,720         81,525             
Corporate bonds
     2,109          <