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, 2021

☐	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)

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.

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 April 2

, 2021, there were 149,591,742 shares of the registrant’s Common Stock, $0.01 par value per share, outstanding.

Table of Contents

WISDOMTREE INVESTMENTS, INC.

Form

10-Q

For the Quarterly Period Ended March 31, 2021

TABLE OF CONTENTS


	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		30

Item 3. Quantitative and Qualitative Disclosures about Market Risk		45

Item 4. Controls and Procedures		46

PART II: OTHER INFORMATION		46

Item 1. Legal Proceedings		46

Item 1A. Risk Factors		46

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		46

Item 3. Defaults Upon Senior Securities		47

Item 4. Mine Safety Disclosures		47

Item 5. Other Information		47

Item 6. Exhibits		48

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

WisdomTree

and Modern Alpha

are trademarks of WisdomTree Investments, Inc. in the United States and in other countries. All other trademarks are the property of their respective owners.

Table of Contents

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, 2020. 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 and its 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;

•

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.

PART I: FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

WisdomTree Investments, Inc. and Subsidiaries

Consolidated Balance Sheets

(In Thousands, Except Per Share Amounts)


	March 31, 2021			December 31, 2020
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	62,302		$	73,425
Securities owned, at fair value (including $23,626 and $23,932 invested in WisdomTree ETFs at March 31, 2021 and December 31, 2020, respectively)		34,771			34,895
Accounts receivable (including $27,258 and $26,884 due from related parties at March 31, 2021 and December 31, 2020, respectively)		30,341			29,455
Income taxes receivable		126			—
Prepaid expenses		4,187			3,827
Other current assets		237			259

Total current assets		131,964			141,861
Fixed assets, net		7,432			7,579
Indemnification receivable (Note 19)		22,222			27,016
Securities held-to-maturity		411			451
Deferred tax assets, net		6,215			8,063
Investments (Note 7)		13,849			8,112
Right of use assets – operating leases (Note 12)		15,841			16,327
Goodwill (Note 21)		85,856			85,856
Intangible assets (Note 21)		601,247			601,247
Other noncurrent assets		180			180

Total assets	$	885,217		$	896,692

Liabilities and stockholders’ equity
Liabilities
Current liabilities:
Fund management and administration payable	$	17,980		$	19,564
Compensation and benefits payable		8,568			22,803
Deferred consideration – gold payments (Note 9)		15,637			17,374
Operating lease liabilities (Note 12)		2,958			3,135
Income taxes payable		—			916
Accounts payable and other liabilities		11,415			10,207

Total current liabilities		56,558			73,999
Convertible notes (Note 10)		171,163			166,646
Deferred consideration – gold payments (Note 9)		211,509			212,763
Operating lease liabilities (Note 12)		17,012			17,434
Other noncurrent liabilities (Note 19)		22,222			27,016
Total liabilities		478,464			497,858


Preferred stock – Series A Non-Voting Convertible, par value $0.01; 14.750 shares authorized, issued and outstanding; redemption value of $88,642 and $72,667 at March 31, 2021 and December 31, 2020, 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; 250,000 shares authorized; issued and outstanding: 149,811 and 148,716 at March 31, 2021 and December 31, 2020, respectively		1,498			1,487
Additional paid-in capital		314,274			317,075
Accumulated other comprehensive income		985			1,102
Accumulated deficit		(42,573	)		(53,399	)

Total stockholders’ equity		274,184			266,265

Total liabilities and stockholders’ equity	$	885,217		$	896,692

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

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WisdomTree Investments, Inc. and Subsidiaries

Consolidated Statements of Operations

(In Thousands, Except Per Share Amounts)

(Unaudited)


	Three Months Ended March 31,
	2021			2020
Operating Revenues:
Advisory fees	$	71,616		$	62,950
Other income		1,214			924

Total revenues		72,830			63,874
Operating Expenses:
Compensation and benefits		22,627			17,295
Fund management and administration		15,521			14,485
Marketing and advertising		3,006			2,468
Sales and business development		2,145			3,417
Contractual gold payments (Note 9)		4,270			3,760
Professional fees		2,013			1,273
Occupancy, communications and equipment		1,475			1,551
Depreciation and amortization		252			256
Third-party distribution fees		1,343			1,355
Acquisition and disposition-related costs		—			383
Other		1,571			1,997

Total operating expenses		54,223			48,240

Operating income		18,607			15,634
Other Income/(Expenses):
Interest expense		(2,296	)		(2,419	)
Gain/(loss) on revaluation of deferred consideration – gold payments (Note 9)		2,832			(2,208	)
Interest income		231			163
Impairments (Notes 12 and 22)		(303	)		(19,672	)
Other losses, net		(5,893	)		(2,507	)

Income/(loss) before income taxes		13,178			(11,009	)
Income tax benefit		(1,969	)		(2,371	)

Net income/(loss)	$	15,147		$	(8,638	)

Earnings/(loss) per share – basic (Note 18)	$	0.09		$	(0.06	)

Earnings/(loss) per share – diluted (Note 18)	$	0.09		$	(0.06	)

Weighted-average common shares – basic (Note 18)		145,649			152,519

Weighted-average common shares – diluted (Note 18)		161,831			152,519

Cash dividends declared per common share	$	0.03		$	0.03

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

Table of Contents

WisdomTree Investments, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(In Thousands)

(Unaudited)


	For the Three Months Ended March 31, 2021
	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, 2021		148,716		$	1,487		$	317,075		$	1,102		$	(53,399	)	$	266,265
Reclassification of equity component related to convertible notes, net of deferred taxes of $1,022, upon the implementation of ASU 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		1,510			15			(15	)		—			—			—
Shares repurchased		(490	)		(5	)		(2,625	)		—			—			(2,630	)
Exercise of stock options, net		75			1			378			—			—			379
Stock-based compensation		—			—			3,143			—			—			3,143
Other comprehensive loss		—			—			—			(117	)		—			(117	)
Dividends		—			—			—			—			(4,937	)		(4,937	)
Net income		—			—			—			—			15,147			15,147

Balance—March 31, 2021		149,811		$	1,498		$	314,274		$	985		$	(42,573	)	$	274,184


	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 income		—			—			—			—			(8,638	)		(8,638	)

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

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

Table of Contents

WisdomTree Investments, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)


	Three Months Ended March 31,
	2021			2020
Cash flows from operating activities:

Net income/(loss)	$	15,147		$	(8,638	)
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Advisory fees received in gold, other precious metals and bitcoin		(19,757	)		(13,860	)
Contractual gold payments		4,270			3,760
Stock-based compensation		3,143			3,239
Deferred income taxes		2,904			4,526
(Gain)/loss on revaluation of deferred consideration – gold payments		(2,832	)		2,208
Amortization of right of use asset		697			798
Amortization of issuance costs – convertible notes		429			—
Impairments		303			19,672
Depreciation and amortization		252			256
Gain on sale – Canadian ETF business		—			(2,877	)
Amortization of issuance costs - former credit facility		—			723
Other		(235	)		(31	)
Changes in operating assets and liabilities:
Securities owned, at fair value		124			(2,942	)
Accounts receivable		290			5,850
Prepaid expenses		(362	)		(616	)
Gold, other precious metals and bitcoin		14,166			9,838
Other assets		5			139
Fund management and administration payable		(1,470	)		537
Compensation and benefits payable		(14,245	)		(22,688	)
Income taxes receivable/payable		(1,028	)		(2,032	)
Securities sold, but not yet purchased, at fair value		—			(112	)
Operating lease liabilities		(918	)		(926	)
Accounts payable and other liabilities		982			542

Net cash provided by/(used in) operating activities		1,865			(2,634	)

Cash flows from investing activities:
Purchase of investments		(5,500	)		—
Purchase of fixed assets		(103	)		(50	)
Proceeds from held-to-maturity securities maturing or called prior to maturity		38			6,030
Proceeds from sale of Canadian ETF business, net		—			2,774

Net cash (used in)/provided by investing activities		(5,565	)		8,754

Cash flows from financing activities:
Dividends paid		(4,937	)		(5,136	)
Shares repurchased		(2,630	)		(1,495	)
Repayment of debt		—			(5,000	)
Proceeds from exercise of stock options		379			240

Net cash used in financing activities		(7,188	)		(11,391	)

Decrease in cash flow due to changes in foreign exchange rate		(235	)		(1,272	)

Decrease in cash and cash equivalents		(11,123	)		(6,543	)
Cash and cash equivalents—beginning of year		73,425			74,972

Cash and cash equivalents—end of period	$	62,302		$	68,429
Supplemental disclosure of cash flow information:
Cash paid for taxes	$	1,278		$	1,147

Cash paid for interest	$	—		$	2,312

NON-CASH

ACTIVITIES

On January 1, 2021, the Company reclassified the equity component related to the convertible notes, net of deferred taxes, increasing retained earnings 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

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, 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 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, 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 ICAV (“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 r

gulated 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 served as the managing owner and commodity pool operator of the WisdomTree Continuous Commodity Index Fund (“GCC”) until December 2020 when GCC was reorganized into the WisdomTree Enhanced Commodity Strategy Fund under WTT.

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.

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

Segment and Geographic Information

The Company, through its subsidiaries in the U.S. and Europe, conducts business as a single operating segment as an ETP sponsor and asset manager which is based upon the Company’s current organizational and management structure, as well as information used by the chief operating decision maker to allocate resources and other factors.

Foreign Currency Translation

Assets and liabilities of subsidiaries whose functional currency is not the U.S. dollar are translated based on the end of period exchange rates from local currency to U.S. dollars. Results of operations are translated at the average exchange rates in effect during the period. The impact of the foreign currency translation adjustment is included in the Consolidated Statements of Comprehensive Income/(Loss) as a component of other comprehensive income/(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 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 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 are classified by the Company as trading. Debt securities are classified based primarily on the Company’s intent to hold or sell the security. Changes in the fair value of debt securities classified as trading and AFS are reported in other income and other comprehensive income, respectively, in the period the change occurs. Debt securities classified as AFS are assessed for impairment on a quarterly basis and an estimate for credit loss is provided when the fair value of the AFS debt security is below its amortized cost basis. Credit-related impairments are recognized in earnings with a corresponding adjustment to the security’s amortized cost basis if the Company intends to sell the impaired AFS debt security or it is more likely than not the Company will be required to sell the security before recovering its amortized cost basis. Other credit-related impairments are recognized as an allowance with a corresponding adjustment to earnings. Impairments resulting from noncredit-related factors are recognized in other comprehensive income. Amounts recorded in other comprehensive income are reclassified into earnings upon sale of the AFS debt security using the specific identification method.

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 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 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 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

. 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

Leases

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.

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

Convertible Notes

Convertible notes are carried at amortized cost, net of issuance costs. Effective January 1, 2021, the Company early adopted ASU

2020-06

Debt – Debt with Conversion and Other Options

under the modified retrospective approach. ASU

2020-06

provides for convertible instruments being reported 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. Previously, the convertible notes were required to be separated into their liability and equity components by allocating the issuance proceeds to each of those components. The liability component was allocated proceeds equal to the estimated fair value of similar debt instruments without the conversion option. The difference between the gross proceeds received from the issuance of the convertible notes and the proceeds allocated to the liability component represented the residual amount that was recorded in additional

paid-in

capital. 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 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 18) 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 co

puted 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.

Recently Adopted Accounting Pronouncements

On January 1, 202

, the Company early adopted ASU

2020-06,

Debt – Debt with Conversion and Other Options

(ASU

2020-06)

under the modified retrospective approach. Under the ASU, the accounting for convertible instruments was simplified by removing major separation models required under current GAAP. Accordingly, more convertible instruments are reported as a single liability or equity with no separate accounting for embedded conversion features. Certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception are removed and, as a result, more equity contracts will qualify for the scope exception. The ASU also simplifies the diluted

earnings-per-share

calculation in certain areas. Upon the adoption of this

ASU,

the Company reclassified the equity component related to the convertible notes, net of deferred taxes, increasing retained earnings 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. These updates also reduced interest expense recognized on the Company’s convertible notes by approximately $420 per quarter (Note 10).

On January 1, 2021, the Company adopted 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 accoun

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. The Company has determined that the adoption of this standard did not have a material impact on its financial statements.

3. Cash and Cash Equivalents

Of the total cash and cash equivalents of $62,302 and $73,425 at March 31, 2021 and December 31, 2020, respectively, $59,919 and $70,911 were held at two financial institutions. At March 31, 2021 and December 31, 2020, cash equivalents were approximately $502 and $660, respectively.

Certain of the Company’s international subsidiaries are required to maintain a minimum level of regulatory capital,

which was $12,222

and $10,745 at March 31, 2021 and December 31, 2020, 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 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 months ended March 31, 2021 and 2020 there were no transfers between Levels 2 and 3.


	March 31, 2021
	Total		Level 1		Level 2		Level 3
Assets:
Recurring fair value measurements:
Cash equivalents	$	502	$	502	$	—	$	—
Securities owned, at fair value
ETFs		23,862		23,862		—		—
Pass-through GSEs		8,832		—		8,832		—
Corporate bonds		2,077		—		2,077		—

Total	$	35,273	$	24,364	$	10,909	$	—


Non-recurring fair value measurements:
Securrency, Inc. – Series A convertible preferred stock (1)	$	8,349	$	—	$	—	$	8,349

Liabilities:
Recurring fair value measurements:
Deferred consideration (Note 9)	$	227,146	$	—	$	—	$	227,146

(1)	Fair value determined on March 8, 2021 (Note 7).


	December 31, 2020
	Total		Level 1		Level 2		Level 3
Assets:
Recurring fair value measurements:
Cash equivalents	$	660	$	660	$	—	$	—
Securities owned, at fair value
ETFs		24,165		24,165		—		—
Pass-through GSEs		8,613		—		8,613		—
Corporate bonds		2,117		—		2,117		—

Total	$	35,555	$	24,825	$	10,730	$	—

Non-recurring fair value measurements:
AdvisorEngine Inc. (“AdvisorEngine”) – Financial interests (1)	$	—	$	—	$	—	$	—
Thesys Group, Inc. (“Thesys”) – Series Y Preferred Stock (1)		—		—		—		—

Total	$	—	$	—	$	—	$	—

Liabilities:
Recurring fair value measurements:
Deferred consideration (Note 12)	$	230,137	$	—	$	—	$	230,137

Non-recurring fair value measurements:
Convertible notes (2)	$	170,191	$	—	$	170,191	$	—

(1)	The fair value of the AdvisorEngine financial interests of $9,592 was determined on May 4, 2020, the date in which these financial interests were sold (Note 22). Thesys was written down to zero on September 30, 2020.

(2)	Fair value of $145,847 and $24,344 determined on June 16, 2020 and August 13, 2020, respectively (Note 10).

Recurring Fair Value Measurements - Methodology

Cash Equivalents (Note 3)

– These financial assets represent cash invested in highly liquid investments with ori

inal maturities of less than 90 days. These investments are valued at par, which approximates fair value, and are classified as Level 1 in the fair value hierarchy.

Securities Owned (Note 5)

– Securities owned are investments in ETFs, pass-through GSEs and corporate bonds. ETFs are generally traded in active, quoted and highly liquid markets and are therefore classified as Level 1 in the fair value hierarchy. Pricing of pass-through GSEs and corporate bonds include consideration given to collateral characteristics and market assumptions related to yields, credit risk and prepayments and are therefore classified as Level 2 in the fair value hierarchy.

Deferred Consideration (Note 9)

– Deferred consideration represents the present value of an obligation to pay gold into perpetuity.

The following table presents a reconciliation of beginning and ending balances of recurring fair value measurements classified as Level 3:


	Three Months Ended March 31,
	2021			2020
Deferred consideration (Note 9)
Beginning balance	$	230,137		$	173,024
Net realized losses (1)		4,270			3,760

Net unrealized (gains)/losses (2)		(2,832	)		2,208
Settlements		(4,429	)		(3,692	)

Ending balanc e	$	227,146		$	175,300

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

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

Table of Contents

5. Securities Owned

These securities consist of the following:


	March 31, 2021		December 31, 2020
Securities Owned
Trading securities	$	34,771	$	34,895

During the three months ended March 31, 2021 and 2020, the Company recognized trading losses of $561 and $196,

respectively on securities owned that were still held at the reporting dates.

The Company had no AFS debt securities at March 31, 2021 and December 31, 2020.

6. Securities

Held-to-Maturity

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

held-to-maturity:


	March 31, 2021		December 31, 2020
Debt instruments: Pass-through GSEs (amortized cost)	$	411	$	451

During the three months ended March 31, 2021 and 2020, the Company received proceeds of $38 and $6,030, respectively, 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, 2021			December 31, 2020
Cost/amortized cost	$	411		$	451
Gross unrealized gains		20			30
Gross unrealized losses		(1	)		(12	)

Fair value	$	430		$	469

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.

The following table sets forth the maturity profile of the securities

held-to-maturity;

however, these securities may be called prior to maturity date:


	March 31, 2021		December 31, 2020
Due within one year	$	—	$	—
Due one year through five years		—		—
Due five years through ten years		—		—
Due over ten years		411		451

Total	$	411	$	451

7. Investments

The following table sets forth the Company’s investments:


	March 31, 2021				December 31, 2020
	Carrying Value		Cost		Carrying Value		Cost
Securrency, Inc. – Series A convertible preferred stock	$	8,349	$	8,112	$	8,112	$	8,112
Securrency, Inc. – Series B convertible preferred stock		5,500		5,500		—		—

Total	$	13,849	$	13,612	$	8,112	$	8,112

Securrency, Inc. – Preferred Stock

The Company owns approximately 25% (or 20% on a fully-diluted basis) of the capital stock of Securrency, Inc. (“Securrency”), a leading developer of institutional-grade blockchain-based financial and regulatory technology, issued as a result of strategic investments totaling $13,612. In consideration of such investments, the Company received 5,178,488 shares of Series A convertible preferred stock (“Series A Shares”) and 2,004,665 shares of Series B convertible preferred stock (“Series B Shares”). The Series B Shares contain a liquidation preference that is pari passu with shares of Series

B-1

convertible preferred stock (which is substantially the same as the Series B Shares except that it has l

mited voting rights) and senior to that of the holders of the Series A Shares, which is senior to the holders of common stock. Otherwise, the Series A Shares and Series B Shares have substantially the same

terms

, are convertible into common stock at the option of the Company and contain various rights and protections including a

non-cumulative

6.0% dividend, payable if and when declared by the board of directors of Securrency. In addition, the Series A Shares and Series B Shares (together with the Series

B-1

convertible preferred stock) are separately redeemable, with respect to all of the shares outstanding of the applicable series of preferred stock (

subject to certain regulatory restrictions of certain investors), for the original issue price thereof, plus all declared and unpaid dividends, upon approval by holders of at least

60%

of the Series A Shares (at any time on or after December 31, 2029) and

90%

of the Series B Shares (at any time on or after March 31, 2031).

The investment is accounted for under the measurement alternative prescribed within ASU

2016-01,

as it does not have a readily determinable fair value and is not considered to be

in-substance

common stock. The investment is assessed for impairment and similar observable transactions on a quarterly basis. On March 8, 2021, the Company recognized a gain of $237

on its Series A Shares, which was re-measured to fair value upon the issuance of Securrency’s Series B Shares. Fair value was determined using the backsolve method, a valuation approach that determines the value of shares for companies with complex capital structures based upon the price paid for shares recently issued. Fair value is allocated across the capital structure using the Black-Scholes option pricing model.

The table below presents the inputs used in backsolve valuation approach (classified as Level 3 in the fair value hierarchy):


Inputs (Initial Recognition – March 8, 2021)
Expected volatility	55	%
Time to exit (in years)	5

There was no impairment recognized during the three months ended March 31, 2020 based upon a qualitative assessment.

8. Fixed Assets, net

The following table summarizes fixed assets:


	March 31, 2021			December 31, 2020
Equipment	$	2,959		$	2,836
Furniture and fixtures		2,225			2,225
Leasehold improvements		11,021			11,012
Less: accumulated depreciation and amortization		(8,773	)		(8,494	)

Total	$	7,432		$	7,579

9. Deferred Consideration

Deferred consideration represents an obligation the Company assumed in connection with its acquisition of the European exchange-traded commodity, currency and

leveraged-and-inverse

business of ETFS Capital Limited (“ETFS Capital”) which occurred on April 11, 2018 (“ETFS Acquisition”). The obligation is for fixed payments to ETFS Capital of physical gold bullion equating to 9,500 ounces of gold per year through March 31, 2058 and then subsequently reduced to 6,333 ounces of gold continuing into perpetuity (“Contractual Gold Payments”).

The Contractual Gold Payments are paid from advisory fee income generated by any Company-sponsored financial product backed by physical gold and are subject to adjustment and reduction for declines in advisory fee income generated by such products, with any reduction remaining due and payable until paid in full. ETFS Capital’s recourse is limited to such advisory fee income and it has no recourse back to the Company for any unpaid amounts that exceed advisory fees earned. ETFS Capital ultimately has the right to claw back Gold Bullion Securities Ltd. (a physically backed gold ETP issuer) if the Company fails to remit any amounts due.

The Company determined the present value of the deferred consideration of $227,146 and $230,137 at March 31, 2021 and December 31, 2020 using the following assumptions:


	March 31, 2021		December 31, 2020
Forward-looking gold price (low) – per ounce	$	1,717	$	1,903
Forward-looking gold price (high) – per ounce	$	3,201	$	2,662
Forward-looking gold price (weighted average) – per ounce	$	2,136	$	2,117
Discount rate		9.0 %		9.0 %
Perpetual growth rate		1.7 %		0.9 %

The forward-looking gold prices at March 31, 2021 were extrapolated from the last observable CMX exchange price (beyond 2026) and the weighted-average price per ounce was derived from the relative present values of the annual payment obligations. The perpetual growth rate was determined based upon the increase in observable forward-looking gold prices through 2026. This obligation is classified as Level 3 as the discount rate and extrapolated forward-looking gold prices are significant unobservable inputs. An increase in spot gold prices, 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.

Current amounts payable were $15,637 and $17,374 and long-term amounts payable were $211,509 and $212,763, respectively, at March 31, 2021 and December 31, 2020, respectively.

During the three months ended March 31, 2021 and 2020, the Company recognized the following in respect of deferred consideration:


	Three Months Ended March 31,
	2021		2020
Contractual Gold Payments	$	4,270	$	3,760
Contractual Gold Payments – gold ounces paid		2,375		2,375
Gain/(loss) on revaluation of deferred consideration – gold payments(1)	$	2,832	$	(2,208	)

(1)

Gains on revaluation of deferred consideration – gold payments result from a decrease in spot gold prices, a decrease in the forward-looking price of gold, a decrease in the perpetual growth rate and an increase in the discount rate used to compute the present value of the annual payment obligations. Losses on revaluation of deferred consideration – gold payments result from an increase in spot gold prices, an increase in the forward-looking price of gold, an increase in the perpetual growth rate and a decrease in the discount rate used to compute the annual payment obligations.

10. Convertible Notes

On June 16, 2020, the

Company issued and sold $150,000 in aggregate principal amount of 4.25% Convertible Senior Notes due 2023

(the “Existing Notes”) pursuant to an Indenture (the “Indenture”), dated June 16, 2020, between the Company and U.S. Bank National Association, as trustee (the “Trustee”), in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. On August 13, 2020, the Company issued and sold $25,000 in aggregate principal amount of 4.25% Convertible Senior Notes due

2023 (the “Additional Notes”) at a price equal to 101% of the principal amount thereof, plus interest deemed to have accrued since June 16, 2020, and constitute a further issuance of, and form a single series with, the Company’s Existing Notes (the Additional Notes and together with the Existing Notes, the “Convertible Notes”). After the issuance of the Additional Notes, the Company had

$175,000

aggregate principal amount of Convertible Notes outstanding.

Key terms of the Convertible Notes are as follows:

•

Maturity date

June 15, 2023, unless earlier converted, repurchased or redeemed.

•

Interest rate of 4.25%

: Payable semiannually in arrears on June 15 and December 15 of each year, beginning on December 15, 2020.

•

Conversion price of $5.92

Convertible at an initial conversion rate of 168.9189 shares of the Company’s common stock, per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $5.92 per share).

•

Conversion

Holders may convert at their option at any time prior to the close of business on the business day immediately preceding March 15, 2023 only under the following circumstances: (i) if the last reported sale price of the Company’s common stock for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of the Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sales price of the Company’s common stock and the conversion rate on each such trading day; (iii) upon a notice of redemption delivered by the Company in accordance with the terms

the Indenture but only with respect to the Convertible Notes called (or deemed called) for redemption; or (iv) upon the occurrence of specified corporate events. On or after March 15, 2023 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Convertible Notes at any time, regardless of the foregoing circumstances.

•

Cash settlement of principal amount

: Upon conversion, the Company will pay cash up to the aggregate principal amount of the Convertible Notes to be converted. At its election, the Company will also settle its conversion obligation in excess of the aggregate principal amount

the Convertible Notes being converted in either cash, shares of its common stock or a combination of cash and shares of its common stock.

•

Redemption price of $7

: The Company may redeem for cash all or any portion of the notes, at its option, on or after June 20, 2021 and on or prior to the 55

scheduled trading day immediately preceding the maturity date, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days, including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding the redemption date. No sinking fund is provided for the Convertible Notes.

•

Limited investor put rights

: Holders of the Convertible Notes have the right to require the Company to repurchase for cash all or a portion of their notes at 100% of their principal amount, plus any accrued and unpaid interest, upon the occurrence of certain change of control transactions or liquidation, dissolution or common stock delisting events.

•

Conversion rate increase in certain customary circumstances

: In certain circumstances, conversions in connection with a “make-whole fundamental change” (as defined in the Indenture) or conversions of Convertible Notes called (or deemed called) for redemption may result in an increase to the conversion rate, provided that the conversion rate will not exceed 270.2702 shares of the Company’s common stock per $1,000 principal amount of the Convertible Notes (the equivalent of 47,297,285 shares of the Company’s common stock), subject to adjustment.

•

Seniority and Security

: The Convertible Notes are the Company’s senior unsecured obligations, but are subordinated in right of payment to the Company’s obligations to make certain redemption payments (if and when due) in respect of its Series A

Non-Voting

Convertible Preferred Stock (Note 11).

The Indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee or the holders of not less than 25% in aggregate principal amount of the Convertible Notes outstanding may declare the entire principal amount of all the Convertible Notes to be repurchased, plus any accrued special interest, if any, to be immediately due and payable.

The following table provides a summary of the carrying value of the Convertible Notes at March 31, 2021 and December 31, 2020:


	March 31, 2021			December 31, 2020
Principal amount	$	175,000		$	175,000
Plus: premium on Additional Notes		250			250

Gross proceeds		175,250			175,250
Less: Unamortized discount (1)		—			(4,207	)

Less: Unamortized issuance costs (1)		(4,087	)		(4,397	)

Carrying amount	$	171,163		$	166,646

Effective interest rate (2)		5.30	%		6.29	%

(1)

Unamortized discount

was

reduced by $4,207 and unamortized issuance costs increased by $119 upon the early adoption of ASU

2020-06

on January 1, 2021. The discount previously arose from the bifurcation of the conversion option which occurred prior to the adoption of ASU

2020-06.

The unamortized issuance costs are reported net of the unamortized premium on the Additional Notes.

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(2)	Includes amortization of the issuance costs allocated to the Convertible Notes and amortization of the premium associated with the Additional Notes. The effective interest rate prior to January 1, 2021 also included amortization of the discount arising from the bifurcation of the conversion option.

On January 1, 2021, the Company early adopted ASU

2020-06,

which simplified the accounting for convertible instruments by providing for such instruments being reported as a single liability (applicable to the convertible notes) or equity with no separate accounting for the 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. Previously, convertible instruments were required to be separated into their liability and equity components by allocating the issuance proceeds to each of those components. The discount arising from the recognition of the equity component was amortized as interest expense over the life of the Convertible Notes.

Interest expense on the convertible notes during the three months ended March 31, 2021 was $2,296. Interest expense during the three months ended March 31, 2020 of $2,419 was attributable to our former credit facility which was terminated on June 16, 2020. Interest payable of $2,209 and $342 at March 31, 2021 and December 31, 2020 is included in accounts payable and other liabilities on the Consolidated Balance Sheets.

The fair value of the Convertible Notes (classified as Level 2 in the fair value hierarchy) was $214,972 at March 31, 2021. The

if-converted

value of the Convertible Notes was $184,755 at March 31, 2021.

11. Preferred Shares

On April 10, 2018, the Company filed a Certificate of Designations of Series A

Non-Voting

Convertible Preferred Stock with the Secretary of State of the State of Delaware establishing the rights, preferences, privileges, qualifications, restrictions, and limitations relating to the Preferred Shares (defined below). The Preferred Shares are intended to provide ETFS Capital with economic rights equivalent to the Company’s common stock on an

as-converted

basis. The Preferred Shares have no voting rights, are not transferable and have the same priority with regard to dividends, distributions and payments as the common stock.

As described in the Certificate of Designations, the Company will not issue, and ETFS Capital does not have the right to require the Company to issue, any shares of common stock upon conversion of the Preferred Shares, if, as a result of such conversion, ETFS Capital (together with certain attribution parties) would beneficially own more than 9.99% of the Company’s outstanding common stock immediately after giving effect to such conversion.

In connection with the completion of the ETFS Acquisition, the Company issued 14,750 shares of Series A

Non-Voting

Convertible Preferred Stock (the “Preferred Shares”), which are convertible into an aggregate of 14,750,000 shares of common stock. The fair value of this consideration was $132,750, based on the closing price of the Company’s common stock on April 10, 2018 of $9.00 per share, the trading day prior to the closing of the acquisition.

The following is a summary of the Preferred Share balance:


	March 31, 2021			December 31, 2020
Issuance of Preferred Shares	$	132,750		$	132,750
Less: Issuance costs		(181	)		(181	)

Preferred Shares – carrying value	$	132,569		$	132,569

Temporary equity classification is required for redeemable instruments for which redemption triggers are outside of the issuer’s control. ETFS Capital has the right to redeem all the Preferred Shares specified to be converted during the period of time specified in the Certificate of Designations in the event that: (a) the number of shares of the Company’s common stock authorized by its certificate of incorporation is insufficient to permit the Company to convert all of the Preferred Shares requested by ETFS Capital to be converted; or (b) ETFS Capital does not, upon completion of a change of control of the Company, receive the same amount per Preferred Share as it would have received had each outstanding Preferred Share been converted into common stock immediately prior

to the change of control. However, the Company will not be obligated to make any such redemption payments to the extent such payments would be a breach of any covenant or obligation the Company owes to any of its secured creditors or is otherwise prohibited by applicable law.

Any such redemption will be at a price per Preferred Share equal to the dollar volume-weighted average price for a share of common stock for the

30-trading

day period ending on the date of such attempted conversion or change of control, as applicable, multiplied by 1,000. Such redemption payment will be made in one payment no later than 10 business days following the last day of the Company’s first fiscal quarter that begins on a date following the date ETFS Capital exercises such redemption right. The redemption value of the Preferred Shares was $88,642 and $72,667 at March 31, 2021 and December 31, 2020, respectively.

The carrying amount of the Preferred Shares was not adjusted as it was not probable that the Preferred Shares would become redeemable.

12. Leases

The Company has entered into operating leases for its corporate headquarters and other office facilities, financial data terminals and equipment. The Company has no finance leases.

The following table provides additional information regarding the Company’s leases:


	Three Months Ended March 31,
	2021			2020
Lease cost:
Operating lease cost	$	697		$	798
Short-term lease cost		295			342

Total lease cost	$	992		$	1,140

Other information:
Cash paid for amounts included in the measurement of operating liabilities (operating leases)	$	918		$	926

Right-of-use assets obtained in exchange for new operating lease liabilities		n/a			n/a

Weighted-average remaining lease term (in years) – operating leases		8.9			9.2

Weighted-average discount rate – operating leases		6.3	%		6.3	%

None of the Company’s leases include variable payments, residual value guarantees or any restrictions or covenants relating to the Company’s ability to pay dividends or incur additional financing obligations.

The Company’s lease of its headquarters, which expires

August 2029, includes an option to extend for an additional five years. Rent payable under the option is equal to the fair market rent of the premises as determined by the landlord approximately six months prior to the commencement of the extension term. The lease also includes a cancellation option which is effective on August 21, 2024 and requires notice to be provided to the landlord at least 12 months prior. Triggering this option requires a cancellation payment of $4,236. The cancellation and extension options were not reasonably certain of being exercised and were therefore not recognized as part of the

right-of-use

asset and lease liability.

Other leases also include extension, automatic renewal and termination provisions. These provisions were also not reasonably certain of being exercised and were therefore not recognized as part of the

right-of-use

asset and lease liability.

During the three months ended March 31, 2021, the Company recognized an impairment charge of $303

resulting from the derecognition of a right-of-use asset upon exiting its London office in February 2021, as well as costs incurred to restore the office space to its original condition.

The following table discloses future minimum lease payments at March 31, 2021 with respect to the Company’s operating lease liabilities:


Remainder of 2021	$	2,218
2022		2,958
2023		2,958
2024		3,037
2025		3,148
2026 and thereafter		11,456

Total future minimum lease payments (undiscounted)	$	25,775

The following table reconciles the future minimum lease payments at March 31, 2021 (disclosed above) to the operating lease liabilities recognized in the Company’s Consolidated Balance Sheet:


Amounts recognized in the Company’s Consolidated Balance Sheet
Lease liability – short term	$	2,958
Lease liability – long term		17,012

Subtotal		19,970
Difference between undiscounted and discounted cash flows		5,805

Total future minimum lease payments (undiscounted)	$	25,775

13. 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.

Closure of the WisdomTree WTI Crude Oil 3x Daily Leveraged ETP

In December 2020, WMAI, WTMAML, WTUK and WisdomTree Ireland Limited were served with a writ of summons to appear before the Court of Milan, Italy, and in January 2021, WTUK was served with a writ of summons to appear before the Court of Udine, Italy. Investors had filed actions seeking approximately €9,000 ($10,565), in the aggregate, resulting from the closure of the WisdomTree WTI Crude Oil 3x Daily Leveraged ETP (“3OIL”) in March 2020. The product was dependent on the receipt of payments from a swap provider to satisfy payment obligations to the investors. Due to an extreme adverse move in oil futures relative to the oil futures’ closing price, the swap contract underlying 3OIL was terminated by the swap provider, which resulted in the compulsory redemption of 3OIL, all in accordance with the prospectus.

The Company is currently assessing these claims and an accrual has not been made with respect to these matters at March 31, 2021 and December 31, 2020.

14. Variable Interest Entities

VIEs are entities with any of the following characteristics: (i) the entity does not have enough equity to finance its activities without additional financial support; (ii) the equity holders, as a group, lack the characteristics of a controlling financial interest; or (iii) the entity is structured with

non-substantive

voting rights.

Consolidation of a VIE is required for the party deemed to be the primary beneficiary, if any. The primary beneficiary is the party who has both (a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (b) an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. The Company is not the primary beneficiary of the entity in which it has a variable interest as it does not have the power to direct the activities that most significantly impact the entity’s economic performance. Such power is conveyed through the entity’s board of directors and the Company does not have control over the board.

The following table presents information about the Company’s variable interests in

non-consolidated

VIEs:


	March 31, 2021		December 31, 2020
Carrying Amount – Assets (Securrency)
Preferred stock – Series A Shares	$	8,349	$	8,112
Preferred stock – Series B Shares		5,500		—

Total (Note 7)	$	13,849	$	8,112

Maximum exposure to loss	$	13,849	$	8,112

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15. Revenues from Contracts with Customers

The following table presents the Company’s total revenues from contracts with customers:


	Three Months Ended
	March 31, 2021		March 31, 2020
Revenues from contracts with customers:
Advisory fees	$	71,616	$	62,950
Other		1,214		924

Total operating revenues	$	72,830	$	63,874

The Company recognizes revenues from contracts with customers when the performance obligation is satisfied, which is when the promised goods or services are transferred to the customer. A good or service is considered to be transferred when the customer obtains control, which is represented by the transfer of rights with regard to the good or service. Transfer of control happens either over time or at a point in time. When a performance obligation is satisfied over time, an entity is required to select a single method of measuring progress for each performance obligation that depicts the entity’s performance in transferring control of goods or services to the customer.

Substantially all the Company’s revenues from contracts with customers are derived primarily from investment advisory agreements with related parties (Note 16). These advisory fees are recognized over time, are earned from the Company’s ETPs and are calculated based on a percentage of the ETPs’ average daily net assets. There is no significant judgment in calculating amounts due which are invoiced monthly in arrears and are not subject to any potential reversal. 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.

There are no contract assets or liabilities that arise in connection with the recognition of advisory fee revenue. In addition, there are no costs incurred to obtain or fulfill the contracts with customers, all of which are investment advisory agreements with related parties.

Geographic Distribution of Revenue

The following table presents the Company’s total revenues geographically as determined by where the respective management companies reside:


	Three Months Ended
	March 31, 2021		March 31, 2020
Revenues from contracts with customers:
United States	$	40,699	$	39,870
Jersey		29,990		22,525
Ireland		2,141		1,114
Canada (Note 22)		—		365

Total operating revenues	$	72,830	$	63,874

16. Related Party Transactions

The Company’s revenue

are derived primarily from investment advisory agreements with related parties. Under these agreements, the Company has licensed to related parties the use of certain of its own indexes for the U.S. WisdomTree ETFs and WisdomTree UCITS ETFs. The Board of Trustees and Board of Directors (including certain officers of the Company) of the related parties are primarily responsible for overseeing the management and affairs of the entities for the benefit of their stakeholders and have contracted with the Company to provide for general management and administration services. The Company is also responsible for certain expenses of the related parties, including the cost of transfer agency, custody, fund administration and accounting, legal, audit, and other

non-distribution

services, excluding extraordinary expenses, taxes and certain other expenses, which is included in fund management and administration on the Company’s Consolidated Statements of Operations. In exchange, the Company receives fees based on a percentage of the ETPs’ average daily net assets. A majority of the independent members of the Board of Trustees are required to annually approve the advisory agreements of the U.S. WisdomTree ETFs and these agreements may be terminated by the Board of Trustees upon notice.

The following table summarizes accounts receivable from related parties which are included as a component of accounts receivable on the Company’s Consolidated Balance Sheets:


	March 31, 2021		December 31, 2020
Receivable from WTT	$	14,347	$	13,030
Receivable from ManJer Issuers		11,134		11,693
Receivable from WMAI and WTI		1,777		2,125
Receivable from WTCS		—		36

Total	$	27,258	$	26,884


	Three Months Ended
	March 31, 2021		March 31, 2020
Advisory services provided to WTT	$	40,536	$	39,601
Advisory services provided to ManJer Issuers		27,045		20,258
Advisory services provided to WMAI and WTI		4,035		2,528
Advisory services provided to WTAMC		—		365
Advisory services provided to WTCS		—