Form 10-Q

Large accelerated filer

Accelerated filer

Non-accelerated
filer

Smaller reporting company

Emerging growth company

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 March 31, 2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

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.)

245 Park Avenue, 35 th Floor New York, New York		10167
(Address of principal executive offices)		(Zip Code)

212-801-2080

(Registrant’s telephone number, including area code)

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

☒

☐

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

☒

☐

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.

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

☐

☒

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

As of April 2

, 2020, there were 156,424,840 shares of the registrant’s Common Stock, $0.01 par value per share, outstanding.

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 this Report and in our Annual Report on Form

10-K

for the fiscal year ended December 31, 2019. 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

COVID-19

pandemic;

•

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;

•

our ability to develop new products and services;

•

our ability to maintain current vendors or find new vendors to provide services to us at favorable costs;

•

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.

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PART I: FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

WisdomTree Investments, Inc. and Subsidiaries

Consolidated Balance Sheets

(In Thousands, Except Per Share Amounts)


	March 31, 2020			December 31, 2019
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	68,429		$	74,972
Securities owned, at fair value (including $19,636 and $16,886 invested in WisdomTree ETFs at March 31, 2020 and December 31, 2019, respectively)		20,261			17,319
Accounts receivable (including $20,169 and $25,667 due from related parties at March 31, 2020 and December 31, 2019, respectively)		22,728			26,838
Prepaid expenses		4,221			3,724
Other current assets		171			207

Total current assets		115,810			123,060
Fixed assets, net		7,914			8,127
Notes receivable, net (Note 8)		8,500			28,172
Indemnification receivable (Note 21)		24,429			32,101
Securities held-to-maturity		10,864			16,863
Deferred tax assets, net		2,863			7,398
Investments (Note 9)		11,192			11,192
Right of use assets – operating leases (Note 14)		17,680			18,161
Goodwill (Note 23)		85,856			85,856
Intangible assets (Note 23)		601,247			603,294
Other noncurrent assets		750			983

Total assets	$	887,105		$	935,207

Liabilities and stockholders’ equity
Liabilities
Current liabilities:
Fund management and administration payable	$	22,053		$	22,021
Compensation and benefits payable		3,424			26,501
Deferred consideration – gold payments (Note 11)		14,500			13,953
Securities sold, but not yet purchased, at fair value		469			582
Operating lease liabilities (Note 14)		3,470			3,682
Income taxes payable		1,284			3,372
Accounts payable and other liabilities		9,129			8,930

Total current liabilities		54,329			79,041
Debt (Note 12)		171,548			175,956
Deferred consideration – gold payments (Note 11)		160,800			159,071
Operating lease liabilities (Note 14)		18,661			19,057
Other noncurrent liabilities (Note 21)		24,429			32,101

Total liabilities		429,767			465,226

Preferred stock – Series A Non-Voting Convertible, par value $0.01; 14.750 shares authorized, issued and outstanding ; redemption value of $50,003 and $71,980 at March 31, 2020 and December 31, 2019, respectively (Note 13)		132,569			132,569
Contingencies (Note 15)
Stockholders’ equity
Preferred stock, par value $0.01; 2,000 shares authorized:		—			—
Common stock, par value $0.01; 250,000 shares authorized; issued and outstanding: 156,424 and 155,264 at March 31, 2020 and December 31, 2019, respectively		1,564			1,553
Additional paid-in capital		349,495			352,658
Accumulated other comprehensive income		92			945
Accumulated deficit		(26,382	)		(17,744	)

Total stockholders’ equity		324,769			337,412

Total liabilities and stockholders’ equity	$	887,105		$	935,207

The accompanying notes are an integral part of these consolidated financial statements

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WisdomTree Investments, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)


	Three Months Ended March 31,
	2020			2019
Cash flows from operating activities:
Net (loss)/income	$	(8,638	)	$	8,824
Adjustments to reconcile net (loss)/ income to net cash (used in)/provided by operating activities:
Impairments		19,672			572
Advisory fees received in gold and other precious metals		(13,860	)		(11,389	)
Deferred income taxes		4,526			3,048
Contractual gold payments		3,760			3,098
Stock-based compensation		3,239			3,072
Gain on sale – Canadian ETF business		(2,877	)		—
(Loss)/gain on revaluation of deferred consideration		2,208			(4,404	)
Amortization of right of use asset		798			798
Amortization of credit facility issuance costs		723			711
Paid-in-kind interest income		—			(595	)
Depreciation and amortization		256			269
Other		(31	)		3
Changes in operating assets and liabilities:
Securities owned, at fair value		(2,942	)		2,454
Accounts receivable		5,850			(1,939	)
Income taxes payable		(2,032	)		(604	)
Prepaid expenses		(616	)		419
Gold and other precious metals		9,838			7,975
Other assets		139			182
Fund management and administration payable		537			4,274
Compensation and benefits payable		(22,688	)		(9,250	)
Securities sold, but not yet purchased, at fair value		(112	)		(360	)
Operating lease liabilities		(926	)		(881	)
Accounts payable and other liabilities		542			1,575

Net cash (used in)/provided by operating activities		(2,634	)		7,852

Cash flows from investing activities:
Purchase of fixed assets		(50	)		(7	)
Proceeds from held-to-maturity securities maturing or called prior to maturity		6,030			18
Proceeds from sale of Canadian ETF business, net		2,774			—

Net cash provided by investing activities		8,754			11

Cash flows from financing activities:
Dividends paid		(5,136	)		(5,097	)
Repayment of debt		(5,000	)		—
Shares repurchased		(1,495	)		(2,005	)
Proceeds from exercise of stock options		240			14

Net cash used in financing activities		(11,391	)		(7,088	)

(Decrease)/increase in cash flow due to changes in foreign exchange rate		(1,272	)		383

Net (decrease)/increase in cash and cash equivalents		(6,543	)		1,158
Cash and cash equivalents – beginning of period		74,972			77,784

Cash and cash equivalents – end of period	$	68,429		$	78,942

Supplemental disclosure of cash flow information:
Cash paid for taxes	$	1,147		$	707

Cash paid for interest	$	2,312		$	2,224

The accompanying notes are an integral part of these consolidated financial statements

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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 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, a

non-consolidated

third party, is a 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 eight 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, a

non-consolidated

third party, is a public limited company domiciled in Ireland.

•

WisdomTree Management Limited

(“WML”)

is an Ireland based management company providing management services to WisdomTree Issuer plc (“WTI”) in respect of the WisdomTree UCITS ETFs issued by WTI. WTI, a

non-consolidated

third party, is a 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 Commodity Services, LLC

(“WTCS”) is a New York based company that serves as the managing owner and commodity pool operator of the WisdomTree Continuous Commodity Index Fund. WTCS is registered with the Commodity Futures Trading Commission and is a member of the National Futures Association.

Sale of Canadian ETF Business

On February 19, 2020, the Company completed the sale of WTAMC to CI Financial Corp. (See Note 24).

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.

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.

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The Company reassesses its evaluation of whether an entity is a VIE when certain reconsideration events occur.

Segment and Geographic Information

Effective January 1, 2020, 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. Previously, the Company’s financial results were reported in its U.S. Business and International Business reportable segments.

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 (Loss)/Income 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 11).

Marketing and Advertising

Advertising costs, including media advertising and production costs, are expensed when incurred.

Depreciation and Amortization

Depreciation is provided for using the straight-line method over the estimated useful lives of the related assets as follows:


Equipment			5 years
Furniture and fixtures			15 years

Leasehold improvements are amortized over the term of their respective leases or service lives of the improvements, whichever is shorter. Fixed assets 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.

Third-Party Distribution Fees

The Company pays a percentage of its advisory fee revenues based on incremental growth in AUM, subject to caps or minimums, to marketing agents to sell WisdomTree ETFs and for including WisdomTree ETFs on third-party customer platforms.

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.

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Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are customer and other obligations due under normal trade terms. The Company measures credit losses by applying historical loss rates, adjusted for current conditions 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.

Notes Receivable

Notes receivable are accounted for on an amortized cost basis, including accrued interest and net of original issue discount and impairments, if any. Interest income is accrued over the term of the notes using the effective interest method. Notes receivable are placed on

non-accrual

status when the Company is in receipt of information indicating collection of interest is doubtful. Cash received on notes receivable placed on

non-accrual

status is recognized on a cash basis as interest income if and when received.

Effective January 1, 2020, the Company performs a review for the impairment of the notes receivable and accrued interest on a quarterly basis using the current expected credit loss model and provides for an allowance for credit losses by applying an estimated loss rate to amounts outstanding at the balance sheet date. Previously, credit losses were measured using an incurred loss approach.

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 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 as an allowance with a corresponding adjustment to earnings, while 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.

Effective January 1, 2020, the Company reviews its portfolio of

held-to-maturity

securities for impairment on a quarterly basis 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. Previously, these securities were evaluated for impairment on a quarterly basis and if a decline in fair value was deemed to be other-than-temporary, the securities was written down to its fair value through earnings.

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 within Accounting Standards Update (“ASU”)

2016-01,

Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities

, 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

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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.

Goodwill

Goodwill is the excess of the fair value 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. Effective January 1, 2020, 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. Previously, these components were tested separately for impairment when Company was operating as more than one operating segment.

Goodwill is assessed for impairment annually on November 30

. When performing its goodwill impairment test, the Company considers a qualitative assessment, when appropriate, and the market approach and its market capitalization when determining the fair value of the reporting units, in the aggregate.

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

Leases

Effective January 1, 2019, the Company accounts for its lease obligations in accordance with Accounting Standards Codification (“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.

Upon adoption of ASC 842 on January 1, 2019, the Company applied the transitional practical expedients to its outstanding leases and therefore the Company did not reassess (i) whether any expired or existing contracts are or contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases. The Company also elected to apply the new lease requirements at the effective date, rather than the beginning of the earliest comparative period presented.

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 and a selected discount rate (Note 11). Changes in the fair value of this obligation are reported as (loss)/gain on revaluation of deferred consideration – gold payments on the Company’s Consolidated Statements of Operations.

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Debt

Debt is carried at amortized cost, net of debt issuance costs. Interest expense is recognized using the effective interest method and includes amortization of debt issuance costs over the life of the debt.

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 20) 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 and

if-converted

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.

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.

Non-income

based taxes are recorded as part of other liabilities and other expenses.

Going Concern

The Company performs a quarterly assessment of its ability to continue as a going concern within one year of the date the financial statements are issued. This assessment include

evaluating the impact of outstanding debt of $174,000 which is scheduled to mature on April 11, 2021. The Company is actively exploring refinancing and extension alternatives to mitigate the risk that it will be unable to satisfy its outstanding debt at maturity.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU

2019-12,

Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes

(ASU

2019-12).

The main objective of the standard is to reduce complexity in the accounting for income taxes by removing the following exceptions: (1) exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items (for example, discontinued operations or other comprehensive income)

;

(2) exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment

;

(3) exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary

;

and (4) exception to the general methodology for calculating income taxes in an interim period when a

year-to-date

loss exceeds the anticipated loss for the year. The standard also simplifies the accounting for income taxes by enacting the following: (a) requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount as a

non-income-based

tax

;

(b) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered as a separate transaction

;

(c) specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements

;

and (d) requiring that an entity reflect the enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. ASU

2019-12

is effective for years beginning after December 15, 2020, including the interim periods within those reporting periods. Early adoption is permitted. The Company has determined that this standard will not have a material impact on its financial statements.

Recently Adopted Accounting Pronouncements

On January 1, 2020, the Company adopted ASU

2016-13,

Financial Instruments-Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments

(ASU

2016-13).

The main objective of the standard is to provide financial statement users

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with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. In issuing this standard, the FASB is responding to criticism that prior guidance delayed recognition of credit losses. The standard replaced the prior guidance’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, applies to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain

off-balance

sheet credit exposures. The standard is applicable to loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, loan commitments and certain other

off-balance

sheet credit exposures, debt securities (including those

held-to-maturity)

and other financial assets measured at fair value through other comprehensive income, and beneficial interests in securitized financial assets. The CECL model does not apply to AFS debt securities. For AFS debt securities with unrealized losses, entities measure credit losses in a manner similar to prior guidance, except that the credit losses are recognized as allowances rather than reductions in the amortized cost of the securities. Accordingly, the new methodology is utilized when assessing the Company’s financial instruments for impairment. As a result, entities recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time. The ASU also simplified the accounting model for purchased credit-impaired debt securities and loans.

ASU

2016-13

also expanded the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. The adoption of this standard, which is applicable to the Company’s trade receivables

, notes receivable

and

held-to-maturity

securities did not have a material impact on the Company’s consolidated financial statements.

On January

2020

, the Company adopted ASU

2018-13,

Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement

(ASU

2018-13),

which modified the disclosure requirements on fair value measurements, including removing the requirement to disclose

(1)

the amount of and reasons for transfers between Level

and Level

of the fair value hierarchy,

(2)

the policy for timing of transfers between levels and

(3)

the valuation processes for Level

fair value measurements. ASU

2018-13

also added new disclosures including the requirement to disclose (a) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level

fair value measurements held at the end of the reporting period and (b) the range and weighted average of significant unobservable inputs used to develop Level

fair value measurements. This standard only impacted the disclosures pertaining to fair value measurements and were incorporated into the notes to the Company’s consolidated financial statements.

3. Cash and Cash Equivalents

Of the total cash and cash equivalents of $68,429 and $74,972 at March 31, 2020 and December 31, 2019, respectively, $62,655 and $72,120 were held at two financial institutions. At March 31, 2020 and December 31, 2019, cash equivalents were approximately $3,885 and $317, respectively.

Certain of the Company’s international subsidiaries are required to maintain a minimum level of regulatory capital, which was $10,398 and $12,312 at March 31, 2020 and December 31, 2019, respectively. These requirements are generally satisfied by cash on hand.

In addition, the Company collateralized its U.S. office lease through a standby letter of credit totaling $1,384 which is restricted from further use.

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 Measurements

, 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


	March 31, 2020
	Total		Level 1		Level 2		Level 3
Assets:
Recurring fair value measurements:
Cash equivalents	$	3,885	$	3,885	$	—	$	—
Securities owned, at fair value		20,261		20,261		—		—

Total	$	24,146	$	24,146	$	—	$	—


Non-recurring fair value measurements:
AdvisorEngine , Inc. – Financial interests (1)	$	8,500	$	—	$	—	$	8,500

Total	$	8,500	$	—	$	—	$	8,500
Liabilities:
Recurring fair value measurements:
Deferred consideration (Note 11)	$	175,300	$	—	$	—	$	175,300
Securities sold, but not yet purchased		469		469		—		—

Total	$	175,769	$	469	$	—	$	175,300

(1)	Fair value determined on March 31, 2020 (Note 7).


	December 31, 2019
	Total		Level 1		Level 2		Level 3
Assets:
Recurring fair value measurements:
Cash equivalents	$	317	$	317	$	—	$	—
Securities owned, at fair value		17,319		17,319		—		—

Total	$	17,636	$	17,636	$	—	$	—


Non-recurring fair value measurements:
AdvisorEngine , Inc. – Financial interests (2)	$	28,172	$	—	$	—	$	28,172

Total	$	28,172	$	—	$	—	$	28,172

Liabilities:
Recurring fair value measurements:
Deferred consideration (Note 11)	$	173,024	$	—	$	—	$	173,024
Securities sold, but not yet purchased		582		582		—		—

Total	$	173,606	$	582	$	—	$	173,024

(2)	Fair value determined on December 31, 2019.

Recurring Fair Value Measurements – Methodology

Cash Equivalents (Note 3)

– These financial assets represent cash invested in highly liquid investments with original maturities of less than 90 days. These investments are valued at par, which approximates fair value, and are considered Level 1.

Securities Owned/Sold but Not Yet Purchased (Note 5)

– Securities owned and sold, but not yet purchased are investments in ETFs. ETFs are generally traded in active, quoted and highly liquid markets and are therefore classified as Level 1 in the fair value hierarchy.

Deferred Consideration

– Deferred consideration represents the present value of an obligation to pay gold into perpetuity and was measured at March 31, 2020 using forward-looking gold prices ranging from $1,597 per ounce to $2,275 per ounce (weighted average of $1,775 per ounce) which are extrapolated from the last observable price (beyond 2025), discounted at a rate of 10% and includes a perpetual growth rate of 1.5%. Forward-looking gold prices ranged from $1,535 per ounce to $2,328 per ounce (weighted

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average of $1,757 per ounce) at December 31, 2019. The weighted-average price per ounce was derived from the relative present values of the annual payment obligations. This obligation is classified as Level 3 as the discount rate, perpetual growth rate and extrapolated forward-looking gold prices are significant unobservable inputs. An increase in forward-looking gold prices

and the perpetual growth rate

would result in an increase in deferred consideration, whereas an increase in the discount rate would reduce the fair value. See Note 11 for additional information.

The following table presents a reconciliation of beginning and ending balances of recurring fair value measurements classified as Level


	Three Months Ended March 31,
	2020			2019
Deferred consideration (Note 11)
Beginning balance	$	173,024		$	161,540
Net realized losses (1)		3,760			3,098
Net unrealized losses/(gains) (2)		2,208			(4,404	)
Settlements		(3,692	)		(3,087	)

Ending balance	$	175,300		$	157,147

(1)	Recorded as contractual gold payments expense on the Company’s Consolidated Statements of Operations.

(2)	Recorded as (loss)/gain on revaluation of deferred consideration – gold payments on the Company’s Consolidated Statements of Operations.

5. Securities Owned/Sold, but Not Yet Purchased

These securities consist of the following:


	March 31, 2020		December 31, 2019
Securities Owned
Trading securities	$	20,261	$	17,319

Securities Sold, but not yet Purchased
Trading securities	$	469	$	582

The Company had no AFS debt securities at March 31, 2020 and December 31, 2019.

6. Securities

Held-to-Maturity

The following table is a summary of the Company’s securities

held-to-maturity:


	March 31, 2020		December 31, 2019
Debt instruments: Pass-through GSEs (amortized cost)	$	10,864	$	16,863

During the three months ended March 31, 2020, the Company received proceeds of $6,030 from

held-to-maturity

securities maturing or being called prior to maturity.

The following table summarizes unrealized gains, losses, and fair value (classified as Level 2 within the fair value hierarchy) of securities

held-to-maturity:


	March 31, 2020			December 31, 2019
Cost/amortized cost	$	10,864		$	16,863
Gross unrealized gains		102			38
Gross unrealized losses		(17	)		(297	)

Fair value	$	10,949		$	16,604

An allowance for credit losses was not provided on the Company’s

held-to-maturity

securities as all securities are investments in pass-through GSEs which are determined to have an estimated loss rate of zero due to an implicit U.S. government guarantee. In addition, no securities were determined to be other-than-temporarily impaired at December 31, 2019.


	Page Number
PART I: FINANCIAL INFORMATION		4

Item 1. Financial Statements		4

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		31

Item 3. Quantitative and Qualitative Disclosures about Market Risk		46

Item 4. Controls and Procedures		47

PART II: OTHER INFORMATION		47

Item 1. Legal Proceedings		47

Item 1A. Risk Factors		47

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		48

Item 3. Defaults Upon Senior Securities		49

Item 4. Mine Safety Disclosures		49

Item 5. Other Information		49

Item 6. Exhibits		50


	Three Months Ended March 31,
	2020			2019
Operating Revenues:
Advisory fees	$	62,950		$	64,840
Other income		924			645

Total revenues		63,874			65,485
Operating Expenses:
Compensation and benefits		17,295			21,301
Fund management and administration		14,485			15,166
Marketing and advertising		2,468			2,680
Sales and business development		3,417			4,422
Contractual gold payments (Note 11)		3,760			3,098
Professional and consulting fees		1,273			1,482
Occupancy, communications and equipment		1,551			1,618
Depreciation and amortization		256			269
Third-party distribution fees		1,355			2,400
Acquisition and disposition-related costs		383			313
Other		1,997			2,053

Total expenses		48,240			54,802

Operating income		15,634			10,683
Other Income/(Expenses):
Interest expense		(2,419	)		(2,892	)
(Loss)/gain on revaluation of deferred consideration – gold payments (Note 11)		(2,208	)		4,404
Interest income		163			779
Impairments (Notes 7 and 24)		(19,672	)		(572	)
Other losses, net		(2,507	)		(4,627	)

(Loss)/income before income taxes		(11,009	)		7,775
Income tax benefit		(2,371	)		(1,049	)

Net (loss)/income	$	(8,638	)	$	8,824

(Loss)/earnings per share – basic (Note 20)	$	(0.06	)	$	0.05

(Loss)/earnings per share – diluted (Note 20)	$	(0.06	)	$	0.05

Weighted-average common shares – basic (Note 20)		152,519			151,625

Weighted-average common shares – diluted (Note 20)		152,519			166,811

Cash dividends declared per common share	$	0.03		$	0.03


	Three Months Ended March 31,
	2020			2019
Net (loss)/income	$	(8,638	)	$	8,824
Other comprehensive (loss)/income
Reclassification of foreign current translation adjustment to other losses, net, upon the sale of WisdomTree Asset Management Canada, Inc. (“WTAMC” or “Canadian ETF business”) (Note 24)		(167	)		—
Foreign currency translation adjustment		(686	)		291

Other comprehensive (loss)/income		(853	)		291

Comprehensive (loss)/income	$	(9,491	)	$	9,115


	For the Three Months Ended March 31, 2020
	Common Stock						Additional Paid-In Capital			Accumulated Other			Accumulated Deficit			Total
	Shares Issued			Par Value			Additional Paid-In Capital			Comprehensive Income			Accumulated Deficit			Total
Balance – January 1, 2020		155,264		$	1,553		$	352,658		$	945		$	(17,744	)	$	337,412
Restricted stock issued and vesting of restricted stock units, net		1,438			14			(14	)		—			—			—
Shares repurchased		(385	)		(3	)		(1,492	)		—			—			(1,495	)
Exercise of stock options, net		107			—			240			—			—			240
Stock-based compensation		—			—			3,239			—			—			3,239
Other comprehensive loss		—			—			—			(853	)		—			(853	)
Dividends		—			—			(5,136	)		—			—			(5,136	)
Net loss		—			—			—			—			(8,638	)		(8,638	)

Balance – March 31, 2020		156,424		$	1,564		$	349,495		$	92		$	(26,382	)	$	324,769


	For the Three Months Ended March 31, 2019
	Common Stock						Additional Paid-In Capital			Accumulated Other		Accumulated Deficit			Total
	Shares Issued			Par Value			Additional Paid-In Capital			Comprehensive Income		Accumulated Deficit			Total
Balance – January 1, 2019		153,202		$	1,532		$	363,655		$	467	$	(7,319	)	$	358,335
Restricted stock issued and vesting of restricted stock units, net		2,145			21			(21	)		—		—			—
Shares repurchased		(311	)		(2	)		(2,003	)		—		—			(2,005	)
Exercise of stock options, net		20			—			14			—		—			14
Stock-based compensation		—			—			3,072			—		—			3,072
Other comprehensive income		—			—			—			291		—			291
Dividends		—			—			—			—		(5,097	)		(5,097	)
Net income		—			—			—			—		8,824			8,824

Balance – March 31, 2019		155,056		$	1,551		$	364,717		$	758	$	(3,592	)	$	363,434