10-Q

September 30,

2022

Conversion of note upon a future equity financing

Redemption of note upon a corporate transaction

Time to potential outcome (in years)

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form

10-Q

contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect our results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed in the section entitled “Risk Factors” included in our Annual Report on Form

10-K

for the fiscal year ended December 31, 2021, as amended, and Quarterly Report on Form

10-Q

for the quarter ended June 30, 2022. If one or more of these or other risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this Report and the documents that we reference in this Report and have filed with the Securities and Exchange Commission, or the SEC, as exhibits to this Report, completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.

In particular, forward-looking statements in this Report may include statements about:

•

the ultimate duration of the

COVID-19

pandemic, or the war in Ukraine, and their short-term and long-term impact on our business and the global economy;

•

anticipated trends, conditions and investor sentiment in the global markets and exchange traded products, or ETPs;

•

anticipated levels of inflows into and outflows out of our ETPs;

•

our ability to deliver favorable rates of return to investors;

•

competition in our business;

•

whether we will experience future growth;

•

our ability to develop new products and services and their success;

•

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

•

our ability to successfully implement our strategy relating to digital assets and blockchain-enabled financial services, including WisdomTree Prime

™

, and achieve its objectives;

•

our ability to successfully operate and expand our business in

non-U.S.

markets; and

•

the effect of laws and regulations that apply to our business.

The forward-looking statements in this Report represent our views as of the date of this Report. We anticipate that subsequent events and developments may cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. Therefore, these forward-looking statements do not represent our views as of any date other than the date of this Report.

Table of Contents

PART I: FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

WisdomTree Investments, Inc. and Subsidiaries

Consolidated Balance Sheets

(In Thousands, Except Per Share Amounts)


	September 30, 2022		December 31, 2021
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	132,700	$	140,709
Securities owned, at fair value (including $12,387 and $18,526 invested in WisdomTree ETFs at September 30, 2022 and December 31, 2021, respectively)		125,110		127,166
Accounts receivable (including $21,222 and $25,628 due from related parties at September 30, 2022 and December 31, 2021, respectively)		25,306		31,864
Prepaid expenses		6,035		3,952
Other current assets		332		276

Total current assets		289,483		303,967
Fixed assets, net		575		557
Indemnification receivable (Note 19)		1,220		21,925
Securities held-to-maturity		267		308
Deferred tax assets, net		6,947		8,881
Investments (Note 7)		26,339		14,238
Right of use assets—operating leases (Note 12)		1,720		520
Goodwill (Note 21)		85,856		85,856
Intangible assets (Note 21)		603,204		601,247
Other noncurrent assets		766		361

Total assets	$	1,016,377	$	1,037,860

Liabilities and stockholders’ equity
Liabilities
Current liabilities:
Convertible notes—current (Note 10)	$	173,760	$	—
Fund management and administration payable		21,466		20,661
Compensation and benefits payable		26,455		32,782
Deferred consideration—gold payments (Note 9)		15,162		16,739
Operating lease liabilities (Note 12)		1,186		209
Income taxes payable		2,094		3,979
Accounts payable and other liabilities		13,122		9,297

Total current liabilities		253,245		83,667
Convertible notes—long term (Note 10)		146,805		318,624
Deferred consideration—gold payments (Note 9)		149,595		211,323
Operating lease liabilities (Note 12)		554		328
Other noncurrent liabilities (Note 19)		1,220		21,925

Total liabilities		551,419		635,867
Preferred stock—Series A Non-Voting Convertible, par value $0.01; 14.750 shares authorized, issued and outstanding; redemption value of $73,594 and $90,741 at September 30, 2022 and December 31, 2021, respectively) (Note 11)		132,569		132,569

Contingencies (Note 13)
Stockholders’ equity
Preferred stock, par value $0.01; 2,000 shares authorized:		—		—
Common stock, par value $0.01; 400,000 shares authorized; issued and outstanding: 146,520 and 145,107 at September 30, 2022 and December 31, 2021, respectively		1,465		1,451
Additional paid-in capital		289,284		289,736
Accumulated other comprehensive (loss) income		(5,209)		682
Retained earnings/(accumulated deficit)		46,849		(22,445)

Total stockholders’ equity		332,389		269,424

Total liabilities and stockholders’ equity	$	1,016,377	$	1,037,860

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

Table of Contents

WisdomTree Investments, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)


	Nine Months Ended September 30,
	2022			2021
Cash flows from operating activities:
Net income	$	78,973		$	38,610
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on revaluation of deferred consideration—gold payments		(63,188	)		(5,066	)
Advisory and license fees paid in gold, other precious metals and cryptocurrency		(44,886	)		(57,617	)
Losses on securities owned, at fair value		15,633			2,099
Contractual gold payments		13,001			12,834
Stock-based compensation		7,822			7,661
Deferred income taxes		2,233			1,515
Amortization of issuance costs—convertible notes		1,941			1,542
Amortization of right of use asset		648			1,860
Depreciation and amortization		158			693
Impairments		—			16,156
Gain on sale—Canadian ETF business, including remeasurement of contingent consideration		—			(787	)
Other		(223	)		(369	)
Changes in operating assets and liabilities:
Accounts receivable		4,076			(1,273	)
Prepaid expenses		(2,356	)		(1,888	)
Gold and other precious metals		33,598			44,006
Other assets		(503	)		(315	)
Intangibles—software development		(1,958	)		—
Fund management and administration payable		1,369			2,868
Compensation and benefits payable		(4,990	)		1,756
Income taxes payable		(1,822	)		(1,050	)
Operating lease liabilities		(644	)		(15,462	)
Accounts payable and other liabilities		4,231			2,336

Net cash provided by operating activities		43,113			50,109

Cash flows from investing activities:
Purchase of securities owned, at fair value		(41,240	)		(97,570	)
Purchase of investments		(11,863	)		(5,750	)
Purchase of fixed assets		(211	)		(237	)
Proceeds from the sale of securities owned, at fair value		27,650			10,976
Proceeds from held-to-maturity securities maturing or called prior to maturity		38			114

Net cash used in investing activities		(25,626	)		(92,467	)

Cash flows from financing activities:
Dividends paid		(14,521	)		(14,662	)
Shares repurchased		(3,418	)		(34,506	)
Convertible notes issuance costs		—			(4,297	)
Proceeds from the issuance of convertible notes		—			150,000
Proceeds from exercise of stock options		—			815

Net cash (used in)/provided by financing activities		(17,939	)		97,350

Decrease in cash flow due to changes in foreign exchange rate		(7,557	)		(493	)

Net (decrease)/increase in cash and cash equivalents		(8,009	)		54,499
Cash and cash equivalents—beginning of year		140,709			73,425

Cash and cash equivalents—end of period	$	132,700		$	127,924

Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	8,769		$	7,332

Cash paid for interest	$	6,156		$	3,719

NON-CASH

ACTIVITIES

On January 1, 2021, the Company reclassified the equity component related to the convertible notes, net of deferred taxes, reducing accumulated deficit by $616, increasing the carrying value of the convertible notes by $4,088, reducing additional paid in capital by $3,682 and reducing deferred tax liabilities by $1,022, upon the implementation of Accounting Standards Update (“ASU”)

2020-06,

Debt – Debt with Conversion and Other Options

(Note 10).

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

Table of Contents

WisdomTree Investments, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(In Thousands, Except Share and Per Share Amounts)

1. Organization and Description of Business

WisdomTree Investments, Inc., through its global subsidiaries (collectively, “WisdomTree” or the “Company”), is an exchange-traded product (“ETP”) sponsor and asset manager headquartered in New York. WisdomTree offers ETPs covering equity, commodity, fixed income, leveraged and inverse, currency, cryptocurrency and alternative strategies. The Company has the following wholly-owned operating subsidiaries:

•

WisdomTree Asset Management, Inc.

is a New York based investment adviser registered with the SEC, providing investment advisory and other management services to the WisdomTree Trust (“WTT”) and WisdomTree exchange-traded funds (“ETFs”). The WisdomTree ETFs are issued in the U.S. by WTT. WTT is a

non-consolidated

Delaware statutory trust registered with the SEC as an

open-end

management investment company. The Company has licensed to WTT the use of certain of its own indexes on an exclusive basis for the WisdomTree ETFs in the U.S.

•

WisdomTree Management Jersey Limited

(“ManJer”) is a Jersey based management company providing management services to seven issuers (the “ManJer Issuers”) in respect of the ETPs issued and listed by the ManJer Issuers covering commodity, currency, cryptocurrency and

leveraged-and-inverse

strategies.

•

WisdomTree Multi Asset Management Limited

(“WTMAML”) is a Jersey based management company providing management services to WisdomTree Multi Asset Issuer PLC (“WMAI”) in respect of the ETPs issued by WMAI. WMAI is a

non-consolidated

public limited company domiciled in Ireland.

•

WisdomTree Management Limited

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

non-consolidated

public limited company domiciled in Ireland.

•

WisdomTree UK Limited

(“WTUK”) is a U.K. based company registered with the Financial Conduct Authority currently providing distribution and support services to ManJer, WTMAML and WML.

•

WisdomTree Europe Limited

is a U.K. based company which is the legacy distributor of the WMAI ETPs and WisdomTree UCITS ETFs. These services are now provided directly by WTUK. WisdomTree Europe Limited is no longer regulated and does not provide any regulated services.

•

WisdomTree Ireland Limited

is an Ireland based company authorized by the Central Bank of Ireland providing distribution services to ManJer, WTMAML and WML.

•

WisdomTree Digital Commodity Services, LLC

is a New York based company that has been formed to serve as the sponsor of the WisdomTree Bitcoin Trust and WisdomTree Ethereum Trust, each an ETF currently under review with the SEC.

•

WisdomTree Digital Management, Inc.

is a New York based company that has been formed to serve as a

SEC-registered

investment adviser and will provide investment advisory and other management services to blockchain-enabled mutual funds whose shares are secondarily recorded on a blockchain.

•

WisdomTree Digital Movement, Inc

. is a New York based company that has been formed to operate a money services business registered with the Financial Crimes Enforcement Network (“FinCEN”) and is seeking state money transmitter licenses to operate a platform for the purchase, sale and exchange of digital assets, while also providing digital wallet services to facilitate such activity.

•

WisdomTree Securities, Inc.

is a New York based company that has been formed to operate as a limited purpose broker-dealer (i.e., mutual fund retailer) upon registration with the SEC, FINRA and state regulatory authorities.

2. Significant Accounting Policies

Basis of Presentation

These consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and in the opinion of management reflect all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of financial condition, results of operations, and cash flows for the periods presented. The consolidated financial statements include the accounts of the Company’s wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Table of Contents

Consolidation

The Company consolidates entities in which it has a controlling financial interest. The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity (“VOE”) or a variable interest entity (“VIE”). The usual condition for a controlling financial interest in a VOE is ownership of a majority voting interest. If the Company has a majority voting interest in a VOE, the entity is consolidated. The Company has a controlling financial interest in a VIE when the Company has a variable interest that provides it with (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

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

Segment and Geographic Information

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

Foreign Currency Translation

Assets and liabilities of subsidiaries whose functional currency is not the U.S. dollar are translated based on the end of period exchange rates from local currency to U.S. dollars. Results of operations are translated at the average exchange rates in effect during the period. The impact of the foreign currency translation adjustment is included in the Consolidated Statements of Comprehensive Income as a component of other comprehensive loss.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet dates and the reported amounts of revenues and expenses for the periods presented. Actual results could differ materially from those estimates.

Revenue Recognition

The Company earns substantially all of its revenue in the form of advisory fees from its ETPs and recognizes this revenue over time, as the performance obligation is satisfied. Advisory fees are based on a percentage of the ETPs’ average daily net assets. Progress is measured using the practical expedient under the output method resulting in the recognition of revenue in the amount for which the Company has a right to invoice.

Contractual Gold Payments

Contractual gold payments are measured and paid monthly based upon the average daily spot price of gold (Note 9).

Marketing and Advertising

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

Depreciation and Amortization

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


Equipment			3 to 5 years

Internally-developed software			3 years

The assets listed above are recorded at cost less accumulated depreciation and amortization.

Stock-Based Awards

Accounting for stock-based compensation requires the measurement and recognition of compensation expense for all equity awards based on estimated fair values. Stock-based compensation is measured based on the grant-date fair value of the award and is amortized over the relevant service period. Forfeitures are recognized when they occur.

Table of Contents

Third-Party Distribution Fees

The Company pays a percentage of its advisory fee revenues based on incremental growth in assets under management (“AUM”), subject to caps or minimums, to marketing agents to sell WisdomTree ETFs and for including WisdomTree ETFs on third-party customer platforms and recognizes these expenses as incurred.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be classified as cash equivalents. The Company maintains deposits with financial institutions in an amount that is in excess of federally insured limits.

Accounts Receivable

Accounts receivable are customer and other obligations due under normal trade terms. The Company measures credit losses, if any, by applying historical loss rates, adjusted for current conditions and reasonable and supportable forecasts to amounts outstanding using the aging method.

Impairment of Long-Lived Assets

The Company performs a review for the impairment of long-lived assets when events or changes in circumstances indicate that the estimated undiscounted future cash flows expected to be generated by the assets are less than their carrying amounts or when other events occur which may indicate that the carrying amount of an asset may not be recoverable.

Securities Owned and Securities Sold, but not yet Purchased (at fair value)

Securities owned and securities sold, but not yet purchased are securities classified as either trading or

available-for-sale

(“AFS”). These securities are recorded on their trade date and are measured at fair value. All equity securities that have readily determinable fair values are classified by the Company as trading. Debt securities are classified based primarily on the Company’s intent to hold or sell the security. Changes in the fair value of debt securities classified as trading and AFS are reported in other income/(expenses) and other comprehensive income, respectively, in the period the change occurs. Debt securities classified as AFS are assessed for impairment on a quarterly basis and an estimate for credit loss is provided when the fair value of the AFS debt security is below its amortized cost basis. Credit-related impairments are recognized in earnings with a corresponding adjustment to the security’s amortized cost basis if the Company intends to sell the impaired AFS debt security or it is more likely than not the Company will be required to sell the security before recovering its amortized cost basis. Other credit-related impairments are recognized as an allowance with a corresponding adjustment to earnings. Impairments resulting from noncredit-related factors are recognized in other comprehensive income. Amounts recorded in other comprehensive income are reclassified into earnings upon sale of the AFS debt security using the specific identification method.

Securities

Held-to-Maturity

The Company accounts for certain of its securities as

held-to-maturity

on a trade date basis, which are recorded at amortized cost. For

held-to-maturity

securities, the Company has the intent and ability to hold these securities to maturity and it is not

more-likely-than-not

that the Company will be required to sell these securities before recovery of their amortized cost bases, which may be maturity.

Held-to-maturity

securities are placed on

non-accrual

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

held-to-maturity

securities placed on

non-accrual

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

The Company reviews its portfolio of

held-to-maturity

securities for impairment on a quarterly basis, recognizing an allowance, if any, by applying an estimated loss rate after consideration for the nature of collateral securing the financial asset as well as potential future changes in collateral values and historical loss information for financial assets secured with similar collateral.

Investments in pass-through government-sponsored enterprises (“GSEs”) are determined to have an estimated loss rate of zero due to an implicit U.S. government guarantee.

Investments

The Company accounts for equity investments that do not have a readily determinable fair value under the measurement alternative prescribed in Accounting Standards Codification (“ASC”) Topic 321,

Investments – Equity Securities

(“ASC 321”), to the extent such investments are not subject to consolidation or the equity method. Under the measurement alternative, these financial instruments are carried at cost, less any impairment (assessed quarterly), plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. In addition, income is recognized when dividends are received only to the extent they are distributed from net accumulated earnings of the investee. Otherwise, such distributions are considered returns of investment and are recorded as a reduction of the cost of the investment.

Table of Contents

Investments in debt instruments are accounted for at fair value, with changes in fair value reported in other income/(expenses).

Goodwill

Goodwill is the excess of the purchase price over the fair values of the identifiable net assets at the acquisition date. The Company tests goodwill for impairment at least annually and at the time of a triggering event requiring

re-evaluation,

if one were to occur. Goodwill is considered impaired when the estimated fair value of the reporting unit that was allocated the goodwill is less than its carrying value. If the estimated fair value of such reporting unit is less than its carrying value, goodwill impairment is recognized based on that difference, not to exceed the carrying amount of goodwill. A reporting unit is an operating segment or a component of an operating segment provided that the component constitutes a business for which discrete financial information is available and management regularly reviews the operating results of that component.

Goodwill is allocated to the Company’s U.S. business and European business components. For impairment testing purposes, these components are aggregated as a single reporting unit as they fall under the same operating segment and have similar economic characteristics.

Goodwill is assessed for impairment annually on November 30

. 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

Software Development Costs

Software development costs incurred after the preliminary project stage is complete are capitalized if it is probable that the project will be completed and the software will be used as intended. Capitalized costs consist of employee compensation costs and fees paid to third parties who are directly involved in the application development efforts. Capitalized costs are amortized over the estimated useful life of the software on a straight-line basis and are included in depreciation and amortization in the Consolidated Statements of Operations. Once the application development stage is complete, additional costs are expensed as incurred.

Leases

The Company accounts for its lease obligations in accordance with ASC Topic 842,

Leases

(“ASC 842”), which requires the recognition of both (i) a lease liability equal to the present value of the remaining lease payments and (ii) an offsetting

right-of-use

asset. The remaining lease payments are discounted using the rate implicit in the lease, if known, or otherwise the Company’s incremental borrowing rate. After lease commencement,

right-of-use

assets are assessed for impairment and otherwise are amortized over the remaining lease term on a straight-line basis. These recognition requirements are not applied to short-term leases which are those with a lease term of 12 months or less. Instead, lease payments associated with short-term leases are recognized as an expense on a straight-line basis over the lease term.

ASC 842 also provides a practical expedient which allows for consideration in a contract to be accounted for as a single lease component rather than allocated between lease and

non-lease

components. The Company has elected to apply this practical expedient to all lease contracts, where applicable.

Deferred Consideration—Gold Payments

Deferred consideration represents the present value of an obligation to pay gold to a third party into perpetuity and is measured using forward-looking gold prices observed on the CMX exchange, a selected discount rate and perpetual growth rate (Note 9). Changes in the fair value of this obligation are reported as gain on revaluation of deferred consideration—gold payments in the Consolidated Statements of Operations.

Table of Contents

Convertible Notes

Convertible notes are carried at amortized cost, net of issuance costs. In accordance with Accounting Standards Update (“ASU”)

2020-06

Debt – Debt with Conversion and Other Options

, the Company accounts for convertible instruments as a single liability (applicable to the convertible notes) or equity with no separate accounting for embedded conversion features unless the conversion feature meets the criteria for accounting under the substantial premium model or does not qualify for a derivative scope exception. Interest expense is recognized using the effective interest method and includes amortization of issuance costs over the life of the debt.

Contingencies

The Company may be subject to reviews, inspections and investigations by regulatory authorities as well as legal proceedings arising in the ordinary course of business. The Company evaluates the likelihood of an unfavorable outcome of all legal or regulatory proceedings to which it is a party and accrues a loss contingency when the loss is probable and reasonably estimable.

Contingent Payments

The Company recognizes a gain on contingent payments when the contingency is resolved and the gain is realized.

Earnings per Share

Basic earnings per share (“EPS”) is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Net income available to common stockholders represents net income of the Company reduced by an allocation of earnings to participating securities. The Series A

non-voting

convertible preferred stock (Note 11) and unvested share-based payment awards that contain

non-forfeitable

rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of EPS pursuant to the

two-class

method. Share-based payment awards that do not contain such rights are not deemed participating securities and are included in diluted shares outstanding (if dilutive).

Diluted EPS is calculated under the treasury stock method and the

two-class

method. The calculation that results in the lowest diluted EPS amount for the common stock is reported in the Company’s consolidated financial statements. The treasury stock method includes the dilutive effect of potential common shares including unvested stock-based awards, the Series A

non-voting

convertible preferred stock and the convertible notes, if any. Potential common shares associated with the Series A

non-voting

convertible preferred stock and the convertible notes are computed under the

if-converted

method. Potential common shares associated with the conversion option embedded in the convertible notes are dilutive when the Company’s average stock price exceeds the conversion price.

Income Taxes

The Company accounts for income taxes using the liability method, which requires the determination of deferred tax assets and liabilities based on the differences between the financial and tax bases of assets and liabilities using the enacted tax rates in effect for the year in which differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is

more-likely-than-not

that some portion or all the deferred tax assets will not be realized.

Tax positions are evaluated utilizing a

two-step

process. The Company first determines whether any of its tax positions are

more-likely-than-not

to be sustained upon examination, based solely on the technical merits of the position. Once it is determined that a position meets this recognition threshold, the position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company records interest expense and penalties related to tax expenses as income tax expense.

The Global Intangible

Low-Taxed

Income (“GILTI”) provisions of the Tax Reform Act requires the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. An accounting policy election is available to either account for the tax effects of GILTI in the period that is subject to such taxes or to provide deferred taxes for book and tax basis differences that upon reversal may be subject to such taxes. The Company accounts for the tax effects of these provisions in the period that is subject to such tax.

Non-income

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

3. Cash and Cash Equivalents

Of the total cash and cash equivalents of $132,700 and $140,709 at September 30, 2022 and December 31, 2021, respectively, $132,348 and $127,328 were held at two financial institutions. At September 30, 2022 and December 31, 2021, cash equivalents were approximately $284 and $11,488, respectively.

Certain of the Company’s international subsidiaries are required to maintain a minimum level of regulatory capital, which was $23,144 and $12,320 at September 30, 2022 and December 31, 2021, respectively. These requirements are generally satisfied by cash on hand.

Table of Contents

4. Fair Value Measurements

The fair value of financial instruments is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., “the exit price”) in an orderly transaction between market participants at the measurement date. ASC 820,

Fair Value Measurement

, establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs reflect assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the transparency of inputs as follows:

Level 1 – Quoted prices for identical instruments in active markets.

Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 – Instruments whose significant drivers are unobservable.

The availability of observable inputs can vary from product to product and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by management in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

The tables below summarize the categorization of the Company’s assets and liabilities measured at fair value. During the three and nine months ended September 30, 2022 and 2021 there were no transfers between Levels 2 and 3.


	September 30, 2022
	Total		Level 1		Level 2		Level 3
Assets:
Recurring fair value measurements:
Cash equivalents	$	284	$	284	$	—	$	—
Securities owned, at fair value
ETFs		12,621		12,621		—		—
U.S. treasuries		8,437		8,437		—		—
Pass-through GSEs		102,248		23,694		78,554		—
Corporate bonds		1,804		—		1,804		—
Investments in Convertible Notes
Securrency, Inc.—convertible note (Note 7)		5,844		—		—		5,844
Fnality International Limited—convertible note (Note 7)		6,195		—		—		6,195

Total	$	137,433	$	45,036	$	80,358	$	12,039


Non-recurring fair value measurements:
Onramp Invest, Inc.—preferred stock (Note 7) (1)	$	312	$	—	$	—	$	312

Liabilities:
Recurring fair value measurements:
Deferred consideration (Note 9)	$	164,757	$	—	$	—	$	164,757

(1)

Fair value determined on May 10, 2022 (Note 7).

Table of Contents


	December 31, 2021
	Total		Level 1		Level 2		Level 3
Assets:

Recurring fair value measurements:
Cash equivalents	$	11,488	$	11,488	$	—	$	—
Securities owned, at fair value
ETFs		18,812		18,812		—		—
Pass-through GSEs		106,245		24,720		81,525		—
Corporate bonds		2,109		—		2,109		—

Total	$	138,654	$	55,020	$	83,634	$	—

Non-recurring fair value measurements:
Securrency, Inc.—Series A convertible preferred stock (1)	$	8,488	$	—	$	—	$	8,488

Liabilities:
Recurring fair value measurements:
Deferred consideration (Note 9)	$	228,062	$	—	$	—	$	228,062

(1)

Fair value of $8,488 and $8,349 determined on June 9, 2021 and March 8, 2021, respectively (Note 7).

Recurring Fair Value Measurements - Methodology

Cash Equivalents (Note

)

– 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 classified as Level 1 in the fair value hierarchy.

Securities Owned (Note

)

– Securities owned are investments in ETFs, pass-through GSEs, U.S. treasuries and corporate bonds. ETFs and U.S. treasuries 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 timing of prepayments and are therefore generally classified as Level 2. Pass-through GSE positions invested in through a fund structure with a quoted market price on an exchange are generally classified as Level 1.

Fair Value Measurements classified as Level 3

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Investments in Convertible Notes (Note 7)
Beginning balance	$	11,712		$	—		$	—		$	—
Purchases		—			—			11,863			—
Net unrealized gains (1)		327			—			176			—

Ending balance	$	12,039		$	—		$	12,039		$	—

Deferred Consideration (Note 9)
Beginning balance	$	242,767		$	226,706		$	228,062		$	230,137
Net realized losses (2)		4,105			4,250			13,001			12,834
Net unrealized gains (3)		(77,895	)		(1,737	)		(63,188	)		(5,066	)
Settlements		(4,220	)		(4,266	)		(13,118	)		(12,952	)

Ending balance	$	164,757		$	224,953		$	164,757		$	224,953

(1)	Recorded in other losses, net in the Consolidated Statements of Operations.

(2)	Recorded as contractual gold payments expense in the Consolidated Statements of Operations.

(3)	Recorded as gain on revaluation of deferred consideration—gold payments in the Consolidated Statements of Operations

Table of Contents

5. Securities Owned

These securities consist of the following:


Securities Owned	September 30, 2022		December 31, 2021
Trading securities	$	125,110	$	127,166

The Company recognized net trading losses on securities owned that were still held at the reporting dates of $6,010 and $1,323 during the three months ended September 30, 2022 and 2021, respectively, and $13,922 and $2,156 during the nine months ended September 30, 2022 and 2021, respectively, which were recorded in other losses, net, in the Consolidated Statements of Operations.

6. Securities

Held-to-Maturity

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

held-to-maturity:


	September 30, 2022		December 31, 2021
Debt instruments: Pass-through GSEs (amortized cost)	$	267	$	308

During the nine months ended September 30, 2022 and 2021, the Company received proceeds of $38 and $114, 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:


	September 30, 2022		December 31, 2021
Cost/amortized cost	$	267	$	308
Gross unrealized gains		—		13
Gross unrealized losses		(23)		—

Fair value	$	244	$	321

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:


	September 30, 2022		December 31, 2021
Due within one year	$	—	$	—
Due one year through five years		—		—
Due five years through ten years		29		—
Due over ten years		238		308

Total	$	267	$	308

7. Investments

The following table sets forth the Company’s investments:


	September 30, 2022				December 31, 2021
	Carrying Value		Cost		Carrying Value		Cost
Securrency, Inc.—Series A convertible preferred stock	$	8,488	$	8,112	$	8,488	$	8,112
Securrency, Inc.—Series B convertible preferred stock		5,500		5,500		5,500		5,500
Securrency, Inc.—convertible note		5,844		5,000		—		—

Subtotal—Securrency, Inc.	$	19,832	$	18,612	$	13,988	$	13,612
Fnality International Limited—convertible note		6,195		6,863		—		—
Onramp Invest, Inc.—Series A-4 preferred stock		312		250		250		250

	$	26,339	$	25,725	$	14,238	$	13,862

Table of Contents

Securrency, Inc. – Preferred Stock

The Company owns approximately 22% (or 18% on a fully-diluted basis) of the capital stock of Securrency, Inc. (“Securrency”), a 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”) in December of 2019 and 2,004,665 shares of Series B convertible preferred stock (“Series B Shares”) in March of 2021. The Series B Shares contain a liquidation preference that is pari passu with shares of Series

B-1

convertible preferred stock (which are substantially the same as the Series B Shares except that they have limited voting rights) and senior to that of the holders of the Series A Shares, which are 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).

These investments are accounted for under the measurement alternative prescribed in ASC 321, as they do not have a readily determinable fair values and are not considered to be

in-substance

common stock. The investments are assessed for impairment and similar observable transactions on a quarterly basis. There was no impairment recognized during the three and nine months ended September 30, 2022 and the three months ended September 30, 2021 based upon a qualitative assessment.

During the nine months ended September 30, 2021, the Company recognized a gain of $376 on its Series A Shares, which were

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 the backsolve valuation approach (classified as Level 3 in the fair value hierarchy):


	Inputs
	June 9, 2021		March 8, 2021
Expected volatility		50%		55%
Time to exit (in years)		4.75		5.00

Securrency – Convertible Note

In April 2022, the Company participated in a convertible note financing, making a $5,000 investment in Securrency. In consideration for its investment, the Company was issued a 7% Convertible Promissory Note maturing on April 21, 2023.

The note is convertible into either Securrency’s common stock or the class of securities convertible into, exchangeable for, or conferring the right to purchase Securrency’s common stock that is issued in the event of a future equity financing at a conversion price equal to a discount of 25% (or, if applicable, a greater discount offered to other holders of convertible securities in such future equity financing round) to the lowest price paid per equity share issued in the future equity financing round.

The note is redeemable upon the occurrence of a corporate transaction for an amount which is the greater of (i) the principal amount and all accrued interest and (ii) the amount that would be received had the note been converted to common stock immediately prior to the occurrence of the corporate transaction. At maturity, redemption or conversion may occur upon the election by the holders of a

majority-in-interest

of the aggregate principal amount of outstanding notes. If no such election is made, Securrency may elect to pay or convert the notes in its sole discretion.

The note is accounted for at fair value. Fair value is determined by the Company using the probability-weighted expected return method (“PWERM”), a valuation approach that estimates the value of the note assuming various outcomes. During the three and nine months ended September 30, 2022, the Company recognized a gain of $565 and $844, respectively, when

re-measuring

the notes to fair value.

The table below presents the probability ascribed to potential outcomes used in the PWERM (classified as Level 3 in the fair value hierarchy) and the time to exit:

Table of Contents

Fnality International Limited – Convertible Note

In February 2022, the Company participated in a convertible note financing, making a £5,000 ($6,863) investment in Fnality International Limited (“Fnality”), a company incorporated in England and Wales and focused on creating a

peer-to-peer

digital wholesale settlement ecosystem comprised of a consortium of financial institutions, offering real time cross-border payments from a single pool of liquidity. In consideration for its investment, the Company was issued a 5% Convertible Unsecured Loan Note maturing on December 31, 2023.

The note is convertible into equity shares in the event of a future financing round at a conversion price equal to the lower of (i) a discount of 20% to lowest price paid per equity share issued pursuant to such future financing round and (ii) an amount paid per share subject to a

pre-money

valuation cap. Mandatory conversion may occur on or after the maturity date or, if earlier, in the event a future financing round has not been completed within a specified time from an initial closing of such financing round (“Long Stop Date”), upon the approval of holders of at least 75% of the outstanding notes. The note is also convertible, at the option of the Company, following the earlier of the maturity date or such Long Stop Date.

The note is redeemable upon the occurrence of a change of control for an amount which is the greater of (i) the principal amount and all accrued interest and (ii) the amount that would be received had the note been converted to equity shares immediately prior to the occurrence of the change of control. Redemption may also occur on or after maturity or prior to maturity upon approval by holders of at least 50% and 75%, respectively, of the outstanding notes, or in connection with bankruptcy or other liquidation events.

The note is accounted for at fair value. Fair value is determined by the Company using the PWERM and is also remeasured for changes in the British pound and U.S. dollar exchange rate. During the three and nine months ended September 30, 2022, the Company recognized a loss of $238 and $668, respectively, when

re-measuring

the notes to fair value.

The table below presents the probability ascribed to potential outcomes used in the PWERM (classified as Level 3 in the fair value hierarchy) and the time to exit:


				September 30, 2022
		Conversion of note upon a future financing round		85%
		Redemption of note upon a change of control		10%
		Default		5%
		Time to potential outcome (in years)		0.25

Onramp Invest, Inc. – Preferred Stock

In June 2021, the Company invested $250 in Onramp Invest, Inc. (“Onramp”), a technology company that provides access to crypto assets for registered investment advisers. In consideration for its investment, the Company was issued a Simple Agreement for Future Equity (“SAFE”), which provided the Company with the right to be issued certain shares of Onramp’s preferred stock in connection with Onramp’s future equity financing for preferred stock, at a 20% discount to the price per share issued in connection with such equity financing, subject to a

pre-determined

valuation cap. In May 2022, in connection with a Series A financing by Onramp, the Company’s SAFE was converted into shares of Series

A-4

Preferred Stock, representing a small ownership interest in Onramp.

The investment is accounted for under the measurement alternative prescribed in 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. During the three and nine months ended September 30, 2022, the Company recognized a gain of $0 and $62, respectively, in connection with the conversion of the SAFE into Series

A-4

Preferred Stock of Onramp. There was no impairment recognized during the three and nine months ended September 30, 2021 based upon a qualitative assessment.

8. Fixed Assets, net

The following table summarizes fixed assets:


	September 30, 2022		December 31, 2021
Equipment	$	919	$	784
Less: accumulated depreciation		(344)		(227)

Total	$	575	$	557

During the three and nine months ended September 30, 2021, the Company recognized an impairment charge of $6,576, representing the

write-off

of leasehold improvements and fixed assets in connection with the termination of the lease for its principal executive office at 245 Park Avenue, New York, New York. See Notes 12 and 23 for additional information.

Table of Contents

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 $164,757 and $228,062 at September 30, 2022 and December 31, 2021 using the following assumptions:


	September 30, 2022		December 31, 2021
Forward-looking gold price (low)—per ounce	$	1,665	$	1,833
Forward-looking gold price (high)—per ounce	$	3,027	$	2,705
Forward-looking gold price (weighted average)—per ounce	$	2,037	$	2,106
Discount rate		12.25%		9.0%
Perpetual growth rate		1.54%		1.0%

The forward-looking gold prices at September 30, 2022 were extrapolated from the last observable CMX exchange price (beyond 2028) 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 2027. This obligation is classified as Level 3 as the discount rate, the extrapolated forward-looking gold prices and perpetual growth rate 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 $15,162 and $16,739 and long-term amounts payable were $149,595 and $211,323, respectively, at September 30, 2022 and December 31, 2021, respectively.

During the three and nine months ended September 30, 2022 and 2021, the Company recognized the following in respect of deferred consideration:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Contractual gold payments	$	4,105	$	4,250	$	13,001	$	12,834
Contractual gold payments—gold ounces paid		2,375		2,375		7,125		7,125
Gain on revaluation of deferred consideration—gold payments (1)	$	77,895	$	1,737	$	63,188	$	5,066

(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.

10. Convertible Notes

On June 14, 2021, the Company issued and sold $150,000 in aggregate principal amount of 3.25% Convertible Senior Notes due 2026 (the “2021 Notes”) pursuant to an indenture dated June 14, 2021, 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 (“Rule 144A”).

On June 16, 2020, the Company issued and sold $150,000 in aggregate principal amount of 4.25% Convertible Senior Notes due 2023 (the “June 2020 Notes”) pursuant to an indenture dated June 16, 2020, between the Company and the Trustee, in a private offering to qualified institutional buyers pursuant to Rule 144A. On August 13, 2020, the Company issued and sold $25,000 in aggregate principal amount of 4.25% Convertible Senior Notes due 2023 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 June 2020 Notes (the “August 2020 Notes” and together with the June 2020 Notes, the “2020 Notes”).

Table of Contents

After the issuance of the 2021 Notes (and together with the 2020 Notes, the “Convertible Notes”), the Company had $325,000 aggregate principal amount of Convertible Notes outstanding.

Key terms of the Convertible Notes are as follows:


	2021 Notes		2020 Notes
Maturity date (unless earlier converted, repurchased or redeemed)		June 15, 2026		June 15, 2023
Interest rate		3.25%		4.25%
Conversion price		$11.04		$5.92
Conversion rate		90.5797		168.9189
Redemption price		$14.35		$7.70

•

Interest rate

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

•

Conversion price

: Convertible at an initial conversion rate of the Company’s common stock, per $1,000 principal amount of notes (equivalent to an initial conversion price as disclosed in the table above).

•

Conversion

Holders may convert at their option at any time prior to the close of business on the business day immediately preceding March 15, 2026 and March 15, 2023 in respect of the 2021 Notes and 2020 Notes, respectively, 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 of the indentures 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, 2026 and March 15, 2023 in respect of the 2021 Notes and 2020 Notes, respectively, 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 of 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:

The Company may redeem for cash all or any portion of the notes, at its option, on or after June 20, 2023 and June 20, 2021 in respect of the 2021 Notes and 2020 Notes, respectively, 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 indentures) 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 144.9275 shares and 270.2702 shares of the Company’s common stock per $1,000 principal amount of the 2021 Notes and 2020 Notes, respectively (the equivalent of 69,036,410 shares of the Company’s common stock), subject to adjustment.

•

Seniority and Security

: The 2021 Notes and 2020 Notes rank equal in right of payment, and 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 12).

The indentures contain 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.

Table of Contents

The following table provides a summary of the carrying value of the Convertible Notes at September 30, 2022 and December 31, 2021:


	September 30, 2022									December 31, 2021
	2021 Notes			2020 Notes			Total			2021 Notes			2020 Notes			Total
Principal amount	$	150,000		$	175,000		$	325,000		$	150,000		$	175,000		$	325,000
Plus: Premium		—			250			250			—			250			250

Gross proceeds	$	150,000		$	175,250		$	325,250		$	150,000		$	175,250		$	325,250
Less: Unamortized issuance costs (1)		(3,195	)		(1,490	)		(4,685	)		(3,833	)		(2,793	)		(6,626	)

Carrying amount	$	146,805		$	173,760		$	320,565		$	146,167		$	172,457		$	318,624

Effective interest rate (1)		3.83%			5.26%			4.60%			3.83%			5.26%			4.60%

(1)

Includes amortization of the issuance costs and premium.

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 2020 Notes.

Interest expense on the Convertible Notes was $3,734 and $11,199, respectively, during the three and nine months ended September 30, 2022, and $3,729 and $8,592, respectively, during the comparable periods in 2021. Interest payable of $3,691 and $590 at September 30, 2022 and December 31, 2021 is included in accounts payable and other liabilities in the Consolidated Balance Sheets.

The fair value of the Convertible Notes (classified as Level 2 in the fair value hierarchy) was $310,890 and $360,571 at September 30, 2022 and December 31, 2021, respectively. The

if-converted

value of the 2020 Notes did not exceed the principal amount at September 30, 2022 and was $180,912 at December 31, 2021. The

if-converted

value of the 2021 Notes did not exceed the principal amount at September 30, 2022 and December 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:


	September 30, 2022			December 31, 2021

Issuance of Preferred Shares	$	132,750		$	132,750
Less: Issuance costs		(181	)		(181	)

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

Cash dividends declared per share	$	0.03		$	0.03

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.

Table of Contents

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 $73,594 and $90,741 at September 30, 2022 and December 31, 2021, 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 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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Lease cost:
Operating lease cost	$	316	$	520	$	648	$	1,860
Short-term lease cost		296		242		856		797

Total lease cost	$	612	$	762	$	1,504	$	2,657


Other information:
Cash paid for amounts included in the measurement of operating liabilities (operating leases)	$	296	$	13,804	$	644	$	15,462

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

Weighted-average remaining lease term (in years)—operating leases		1.5		1.8		1.5		1.8

Weighted-average discount rate—operating leases		6.3%		4.4%		6.3%		4.4%

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.

During the three and nine months ended September 30, 2021, the Company recognized an impairment charge of $9,277 and $9,580, respectively, resulting from the derecognition of

right-of-use

assets upon exiting its New York and London offices in September 2021 and February 2021, respectively, as well as costs incurred to restore the office spaces to their original condition. These losses are included in impairments in the Company’s Consolidated Statements of Operations (Note 23).

The following table discloses future minimum lease payments at September 30, 2022 with respect to the Company’s operating lease liabilities:



Remainder of 2022	$	317
2023		1,110
2024		397
2025		—
2026		—
2027 and thereafter		—

Total future minimum lease payments (undiscounted)	$	1,824

Table of Contents

The following table reconciles the future minimum lease payments (disclosed above) at September 30, 2022 to the operating lease liabilities recognized in the Consolidated Balance Sheets:



Amounts recognized in the Consolidated Balance Sheets
Lease liability—short term	$	1,186
Lease liability—long term		554

Subtotal		1,740
Difference between undiscounted and discounted cash flows		84

Total future minimum lease payments (undiscounted)	$	1,824

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 (“WT Ireland”) were served with a writ of summons to appear before the Court of Milan, Italy. In January 2021, WTUK was served with a writ of summons to appear before the Court of Udine, Italy. Investors had filed actions seeking damages 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.

In February 2022, the Court of Udine ruled in the Company’s favor. Also in February 2022, WMAI, WTMAML, WTUK and WT Ireland were served with another writ of summons to appear before the Court of Milan by additional investors seeking damages resulting from the closure of 3OIL.

In March 2022, WMAI and WTUK were served with writs of summons to appear before the Court of Turin and the Court of Milan by additional investors seeking damages. These writs also were served on the intermediary brokers for the respective claimants, with the claimants alleging joint and several liability of WMAI, WTUK and such intermediary brokers.

Total damages sought by all investors are approximately €15,800 ($15,378) at September 30, 2022.

The Company is currently assessing these claims with its external counsel. An accrual has not been made with respect to these matters at September 30, 2022 and December 31, 2021.

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 any entities in which it has a variable interest as it does not have the power to direct the activities that most significantly impact the entities’ economic performance. Such power is conveyed through the entities’ boards of directors and the Company does not have control over the boards.

Table of Contents

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

non-consolidated

VIEs:


	September 30, 2022		December 31, 2021
Carrying Amount — Assets (Securrency)
Preferred stock—Series A Shares	$	8,488	$	8,488
Preferred stock—Series B Shares		5,500		5,500
Convertible note		5,844		—

Subtotal—Securrency	$	19,832	$	13,988
Carrying Amount — Assets (Fnality)
Convertible note		6,195		—
Carrying Amount — Assets (Onramp)
Preferred stock		312		250

Total (Note 7)	$	26,339	$	14,238

Maximum exposure to loss	$	26,339	$	14,238

15. Revenues from Contracts with Customers

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenues from contracts with customers:
Advisory fees	$	70,616	$	76,400	$	222,719	$	220,611
Other		1,798		1,712		5,316		4,532

Total operating revenues	$	72,414	$	78,112	$	228,035	$	225,143

The Company recognizes revenues from contracts with customers when the performance obligation is satisfied, which is when the promised services are transferred to the customer. A service is considered to be transferred when the customer obtains control, which is represented by the transfer of rights with regard to the 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 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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenues from contracts with customers:
United States	$	45,263	$	46,523	$	137,299	$	131,744
Jersey		23,702		28,724		80,111		85,953
Ireland		3,449		2,865		10,625		7,446

Total operating revenues	$	72,414	$	78,112	$	228,035	$	225,143

Table of Contents

16. Related Party Transactions

The Company’s revenues 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 are included in fund management and administration in the 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 in the Consolidated Balance Sheets:


	September 30, 2022		December 31, 2021
Receivable from WTT	$	14,618	$	15,987
Receivable from ManJer Issuers		4,624		6,460
Receivable from WMAI and WTI		1,980		3,181

Total	$	21,222	$	25,628

The allowance for credit losses on accounts receivable from related parties is insignificant when applying historical loss rates, adjusted for current conditions and supportable forecasts, to the amounts outstanding in the table above. Amounts outstanding are all invoiced in arrears, are less than 30 days aged and are collected shortly after the applicable reporting period.

The following table summarizes revenues from advisory services provided to related parties:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Advisory services provided to WTT	$	45,112	$	46,386	$	136,852	$	131,364
Advisory services provided to ManJer Issuers		22,055		24,759		75,242		75,296
Advisory services provided to WMAI and WTI		3,449		5,255		10,625		13,951

Total	$	70,616	$	76,400	$	222,719	$	220,611

The Company also has investments in certain WisdomTree ETFs of approximately $12,387 and $18,526 at September 30, 2022 and December 31, 2021, respectively. Net gain and (losses) related to trading WisdomTree ETFs were ($489) and ($1,608), respectively, during the three and nine months ended September 30, 2022, and ($92) and $75, respectively, during the comparable periods in 2021. Such gains and losses are recorded in other losses, net in the Consolidated Statements of Operations.

17. Stock-Based Awards

On July 15, 2022, the Company’s stockholders approved the 2022 Equity Plan under which the Company may issue up to 16,000,000 shares of common stock (less one share for every share granted under the 2016 Equity Plan since March 31, 2022 and inclusive of shares available under the 2016 Equity Plan as of March 31, 2022) in the form of stock options and other stock-based awards.

The Company grants equity awards to employees and directors which include restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance-based restricted stock units (“PRSUs”) and stock options. Certain awards described below are subject to acceleration under certain conditions.


Stock options:		Generally issued for terms of ten years and may vest after at least one year of service and have an exercise price equal to the Company’s stock price on the grant date. The Company estimates the fair value of stock options (when granted) using the Black-Scholes option pricing model.

RSAs/RSUs:		Awards are valued based on the Company’s stock price on grant date and generally vest ratably over three years.

Table of Contents


PRSUs:		These awards cliff vest three years from the grant date and contain a market condition whereby the number of PRSUs ultimately vesting is tied to how the Company’s total shareholder return (“TSR”) compares to a peer group of other publicly traded asset managers over the three-year period. A Monte Carlo simulation is used to value these awards.

		The number of PRSUs vesting ranges from 0% to 200% of the target number of PRSUs granted, as follows: • If the relative TSR is below the 25 th percentile, then 0% of the target number of PRSUs granted will vest; • If the relative TSR is at the 25 th percentile, then 50% of the target number of PRSUs granted will vest; and • If the relative TSR is above the 25 th percentile, then linear scaling is applied such that the percent of the target number of PRSUs vesting is 100% at the 50 th percentile and capped at 200% of the target number of PRSUs granted for performance at the 85 th percentile (or 100 th percentile for grants made during 2019 and 2020). • If the Company’s TSR is negative, the target number of PRSUs vesting is capped at 100% regardless of the relative TSR percentile.

Stock-based compensation expense was $2,454 and $7,822, respectively, during the three and nine months ended September 30, 2022, and $2,397 and $7,661, respectively, during the comparable periods in 2021.

A summary of unrecognized stock-based compensation expense and average remaining vesting period is as follows:


	September 30, 2022
	Unrecognized Stock- Based Compensation		Average Remaining Vesting Period (Years)
Employees and directors	$	15,109	1.63

A summary of stock-based compensation award activity (shares) during the three months ended September 30, 2022 is as follows:


	RSAs			RSUs			PRSUs
Balance at July 1, 2022		3,399,274			47,656			668,188
Granted		82,458			95,687			—
Exercised/vested		(19,210	)		—			—
Forfeitures		(69,272	)		(1,380	)		—

Balance at September 30, 2022		3,393,250			141,963			668,188

18. Earnings Per Share

The following tables set forth reconciliations of the basic and diluted earnings per share computations for the periods presented:


	Three Months Ended September 30,						Nine Months Ended September 30,
Basic Earnings per Share	2022			2021			2022			2021
Net income	$	81,229		$	5,833		$	78,973		$	38,610
Less: Income distributed to participating securities		(546	)		(538	)		(1,644	)		(1,634	)
Less: Undistributed income allocable to participating securities		(8,583	)		(115	)		(7,268	)		(2,666	)

Net income available to common stockholders—Basic EPS	$	72,100		$	5,180		$	70,061		$	34,310

Weighted average common shares (in thousands)		143,120			142,070			142,984			144,445

Basic earnings per share	$	0.50		$	0.04		$	0.49		$	0.24

Table of Contents


	Three Months Ended September 30,						Nine Months Ended September 30,
Diluted Earnings per Share	2022			2021			2022			2021
Net income available to common stockholders	$	72,100		$	5,180		$	70,061		$	34,310
Add back: Undistributed income allocable to participating securities		8,583			115			7,268			2,666
Less: Reallocation of undistributed income allocable to participating securities considered potentially dilutive		(8,568	)		(115	)		(7,257	)		(2,647	)

Net income available to common stockholders—Diluted EPS	$	72,115		$	5,180		$	70,072		$	34,329

Weighted Average Diluted Shares (in thousands):
Weighted average common shares		143,120			142,070			142,984			144,445
Dilutive effect of common stock equivalents, excluding participating securities		287			1,072			261			1,159

Weighted average diluted shares, excluding participating securities (in thousands)		143,407			143,142			143,245			145,604

Diluted earnings per share	$	0.50		$	0.04		$	0.49		$	0.24

Diluted earnings per share presented above is calculated using the

two-class

method as this method results in the lowest diluted earnings per share amount for common stock. Total antidilutive

non-participating

common stock equivalents were 483 and 410, respectively, during the three and nine months ended September 30, 2022, and 48 and 130, respectively, during the comparable periods in 2021 (shares herein are reported in thousands).

Potential common shares associated with the conversion option embedded in the Convertible Notes were excluded from the computation for the three and nine months ended September 30, 2022 as the Company’s average stock price during those respective periods was lower than the conversion price. Potential common shares associated with the conversion option embedded in the Convertible Notes for the three and nine months ended September 30, 2021 were 1,042 and 1,140, respectively (shares herein are reported in thousands).

The following table reconciles weighted average diluted shares as reported in the Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021, which are determined pursuant to the treasury stock method, to the weighted average diluted shares used to calculate diluted earnings/(loss) per share as disclosed in the table above:


	Three Months Ended September 30,						Nine Months Ended September 30,
Reconciliation of Weighted Average Diluted Shares (in thousands)	2022			2021			2022			2021
Weighted average diluted shares as disclosed on the consolidated statements of operations		158,953			159,213			158,741			161,706
Less: Participating securities
Weighted average shares of common stock issuable upon conversion of the Preferred Shares (Note 11)		(14,750	)		(14,750	)		(14,750	)		(14,750	)
Potentially dilutive restricted stock awards		(796	)		(1,321	)		(746	)		(1,352	)

Weighted average diluted shares used to calculate diluted earnings/(loss) per share as disclosed in the table above		143,407			143,142			143,245			145,604

19. Income Taxes

Effective Income Tax Rate – Three and nine months ended September 30, 2022

The Company’s effective income tax rate during the three months ended September 30, 2022 of 3.9% resulted in income tax expense of $3,327. The effective income tax rate differs from the federal statutory tax rate of 21% primarily due a

non-taxable

gain on revaluation of deferred consideration. This was partly offset an increase in the deferred tax asset valuation allowance on losses recognized on securities owned.

The Company’s effective income tax rate during the nine months ended September 30, 2022 of negative 15.7% resulted in an income tax benefit of $10,713. The effective income tax rate differs from the federal statutory tax rate of 21% primarily due to a $19,897 reduction in unrecognized tax benefits (including interest and penalties), a

non-taxable

gain on revaluation of deferred consideration and a lower tax rate on foreign earnings. These items were partly offset by an increase in the deferred tax asset valuation allowance on losses recognized on securities owned.

Table of Contents

Effective Income Tax Rate – Three and nine months ended September 30, 2021

The Company’s effective income tax rate during the three months ended September 30, 2021 of 7.9% resulted in income tax expense of $500. The effective income tax rate differs from the federal statutory tax rate of 21% primarily due to a lower tax rate on foreign earnings and a

non-taxable

gain on revaluation of deferred consideration, partly offset by higher

non-deductible

compensation.

The Company’s effective income tax rate for the nine months ended September 30, 2021 of 6.7% resulted in income tax expense of $2,790. The effective income tax rate differs from the federal statutory rate of 21% primarily due to a $5,171 reduction in unrecognized tax benefits, a lower tax rate on foreign earnings and a

non-taxable

gain on revaluation of deferred consideration. These items were partly offset by tax shortfalls associated with the vesting and exercise of stock-based compensation and

non-deductible

executive compensation.

Deferred Tax Assets

A summary of the components of the Company’s deferred tax assets at September 30, 2022 and December 31, 2021 are as follows:


	September 30, 2022		December 31, 2021
Deferred tax assets:
Capital losses	$	17,033	$	16,601
Accrued expenses		4,228		4,993
Unrealized losses		3,938		614
NOLs—Foreign		1,607		1,934
Goodwill and intangible assets		1,133		1,276
Stock-based compensation		1,107		1,359
Interest carryforwards		321		437
NOLs—U.S.		255		382
Foreign currency translation adjustment		169		—
Outside basis differences		122		122
Other		354		376

Deferred tax assets		30,267		28,094

Deferred tax liabilities:
Fixed assets and prepaid assets		422		257
Unremitted earnings—International subsidiaries		198		118
Foreign currency translation adjustment		—		181

Deferred tax liabilities		620		556

Total deferred tax assets less deferred tax liabilities		29,647		27,538
Less: Valuation allowance		(22,700)		(18,657)

Deferred tax assets, net	$	6,947	$	8,881

Net Operating and Capital Losses—U.S.

The Company’s tax effected net operating losses (“NOLs”) at September 30, 2022 were $255, which expire in 2024. The net operating loss carryforwards have been reduced by the impact of annual limitations described in the Internal Revenue Code Section 382 that arose as a result of an ownership change.

The Company’s tax effected capital losses at September 30, 2022 were $17,033. These capital losses expire between the years 2023 and 2027.

Net Operating Losses—International

One of the Company’s European subsidiaries generated NOLs outside the U.S. These tax effected NOLs, all of which are carried forward indefinitely, were $1,607 at September 30, 2022.

Valuation Allowance

The Company’s valuation allowance has been established on its net capital losses, international net operating losses, unrealized losses and outside basis differences, as it is

more-likely-than-not

that these deferred tax assets will not be realized.

Table of Contents

Uncertain Tax Positions

Tax positions are evaluated utilizing a

two-step

process. The Company first determines whether any of its tax positions are

more-likely-than-not

In connection with the ETFS Acquisition, the Company accrued a liability for uncertain tax positions and interest and penalties at the acquisition date. The Company also recorded an offsetting indemnification asset provided by ETFS Capital as part of its agreement to indemnify the Company for any potential claims. The table below sets forth the aggregate changes in the balance of these gross unrecognized tax benefits:


	Total			Unrecognized Tax Benefits			Interest and Penalties
Balance on January 1, 2022	$	21,925		$	18,218		$	3,707
Decrease—Settlements (1)		(13,052	)		(11,865	)		(1,187	)
Decrease—Lapse of statute of limitations (1)		(6,845	)		(4,825	)		(2,020	)
Increases		7			—			7
Foreign currency translation (2)		(583	)		(485	)		(98	)

Balance at March 31, 2022	$	1,452		$	1,043		$	409
Increases		7			—			7
Foreign currency translation (2)		(108	)		(78	)		(30	)

Balance at June 30, 2022	$	1,351		$	965		$	386
Increases		6			—			6
Foreign currency translation (2)		(137	)		(98	)		(39	)

Balance at September 30, 2022	$	1,220		$	867		$	353

(1)

In January 2022, an audit of ManJer’s tax returns (a Jersey-based subsidiary) for the years ended December 31, 2014, 2016, 2017 and 2018 were resolved in favor of ManJer. The settlement, as well as the reduction in unrecognized tax benefits from the lapse of the statute of limitations totaling $19,897 during the three months ended March 31, 2022, was recorded as an income tax benefit with an equal and offsetting amount recorded in other losses, net, to recognize a reduction in the indemnification asset. During the three months ended March 31, 2021, an income tax benefit of $5,171 was recorded along with an equal and offsetting amount in other losses, net.

(2)	The gross unrecognized tax benefits were accrued in British pounds.

The gross unrecognized tax benefits and interest and penalties totaling $1,220 at September 30, 2022 are included in other

non-current

liabilities in the Consolidated Balance Sheets. It is reasonably possible that these unrecognized tax benefits will reduce to zero in the next 12 months upon lapsing of the statute of limitations. If recognized, these unrecognized tax benefits would impact the effective tax rate. The recognition of any unrecognized tax benefits would result in an equal and offsetting adjustment to the indemnification asset which would be recorded in income before taxes due to the indemnity for any potential claims.

Income Tax Examinations

The Company is subject to U.S. federal income tax as well as income tax of multiple state, local and certain foreign jurisdictions. As of September 30, 2022, with few exceptions, the Company was no longer subject to income tax examinations by any taxing authority for the years before 2017.

ManJer’s tax returns (a Jersey-based subsidiary) were previously under review for the years ended December 31, 2014, 2016, 2017 and 2018. In January 2022, the audit was resolved in favor of ManJer. In addition, the Company’s tax returns were previously under review by the State of Michigan for the years ended 2017 through 2020. In August 2022, the audit was resolved in favor of the Company.

Undistributed Earnings of Foreign Subsidiaries

ASC

740-30,

Income Taxes, provides guidance that US companies do not need to recognize tax effects on foreign earnings that are indefinitely reinvested. The Company repatriates earnings of its foreign subsidiaries and therefore has recognized a deferred tax liability of $198 and $118 at September 30, 2022 and December 31, 2021, respectively.

Table of Contents

20. Shares Repurchased

On February 22, 2022, the Company’s board of directors approved an increase of $85,709 to the Company’s share repurchase program to $100,000 and extended the term for three years through April 27, 2025. Included under the Company’s share repurchase program are purchases to offset future equity grants made under the Company’s equity plans and purchases made in open market or privately negotiated transactions. This authority may be exercised from time to time, subject to regulatory considerations. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions and other corporate liquidity requirements and priorities. The repurchase program may be suspended or terminated at any time without prior notice. Shares repurchased under this program are returned to the status of authorized and unissued on the Company’s books and records.

During the three and nine months ended September 30, 2022, the Company repurchased 4,567 and 593,261 shares of its common stock, respectively, for aggregate consideration of $24 and $3,418, respectively.

During the three and nine months ended September 30, 2021, the Company repurchased zero shares and 5,120,496 shares of its common stock, respectively for aggregate consideration of zero and $34,506, respectively.

Shares repurchased under this program were returned to the status of authorized and unissued on the Company’s books and records.

As of September 30, 2022, $99,976 remained under this program for future purchases.

21. Goodwill and Intangible Assets

Goodwill

The table below sets forth goodwill which is tested annually for impairment on November 30


	Total
Balance at January 1, 2022	$	85,856
Changes		—

Balance at September 30, 2022	$	85,856

Goodwill arising from the ETFS Acquisition of $84,057 is not deductible for tax purposes as the acquisition was structured as a stock acquisition occurring in the United Kingdom. The remainder of the goodwill is deductible for U.S. tax purposes.

Intangible Assets


Item	Gross Asset		Accumulated Amortization		Net Asset
ETFS acquisition	$	601,247	$	—	$	601,247
Software development		1,958		(1)		1,957

Balance at September 30, 2022	$	603,205	$	(1)	$	603,204

ETFS Acquisition (Indefinite-Lived)

In connection with the ETFS Acquisition, which was completed on April 11, 2018, the Company identified intangible assets valued at $601,247 related to the right to manage AUM through customary advisory agreements. These intangible assets were determined to have indefinite useful lives and are not deductible for tax purposes. The Company’s tests these indefinite-lived intangible assets annually for impairment on November 30

Software Development (Finite-Lived)

Internally-developed software is amortized over a useful life of three years. During the three and nine months ended September 30, 2022, the Company recognized amortization expense on internally-developed software of $1.

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes and the other financial information included elsewhere in this Report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below. For a more complete description of the risks noted above and other risks that could cause our actual results to materially differ from our current expectations, please see Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as amended, and Quarterly Report on Form 10-Q for the quarter ended June 30, 2022. We assume no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.

Executive Summary

Introduction

We are an asset management company in the business of offering transparent financial exposures to our clients and are a leading global ETP sponsor based on assets under management, or AUM, with AUM of $70.9 billion as of September 30, 2022. More recently, we have been positioning ourselves to expand beyond our existing ETP business by leveraging blockchain technology, digital assets and principles of decentralized finance, or DeFi, to deliver transparency, choice and inclusivity to customers and consumers around the world.

Our family of ETPs includes providing exposure to equities, commodities, fixed income, leveraged and inverse, currency, cryptocurrency and alternative strategies. We have launched many first-to-market products and pioneered alternative weighting we call “Modern Alpha,” which combines the outperformance potential of active management with the benefits of passive management to offer investors cost-effective funds that are built to perform. Most of our equity-based funds employ a fundamentally weighted investment methodology, which weights securities based on factors such as dividends, earnings or investment factors, whereas most other industry indexes use a capitalization weighted methodology. These products are distributed through all major channels in the asset management industry, including banks, brokerage firms, registered investment advisers, institutional investors, private wealth managers and online brokers primarily through our sales force.

We are at the forefront of innovation and have differentiated ourselves through continued investments in technology-enabled and research-driven solutions such as our Advisor Solutions program, which includes portfolio construction, asset allocation, practice management services and digital tools for financial advisors. We seek to usher in the next chapter of financial services by introducing new revenue streams and expanding our offerings to include a new financial services mobile application, branded WisdomTree Prime^™, a digital wallet that is native to the blockchain and being developed for saving, spending and investing in both native crypto assets and tokenized versions of mainstream financial assets (e.g., blockchain enabled investment funds). We also are planning to launch asset- and fund-tokenization products beginning with a dollar token, gold token and digital short term treasury fund which will be available on multiple public and permissioned blockchains, leveraging federal and state regulated entities. As we pursue our digital assets strategy, we are embracing a concept we refer to as “responsible DeFi,” which we believe upholds the foundational principles of regulation in this innovative and quickly evolving space.

We were incorporated under the laws of the state of Delaware on September 19, 1985 as Financial Data Systems, Inc. and ultimately renamed WisdomTree Investments, Inc. on September 6, 2005.

•

Revenues – We recorded operating revenues of $72.4 million during the three months ended September 30, 2022, down 7.3% from the three months ended September 30, 2021 due to a lower average advisory fee.

•

Operating Expenses – Total operating expenses increased 6.7% from the three months ended September 30, 2021 to $57.5 million primarily due to higher incentive compensation and headcount, fund management and administration costs, professional fees incurred in connection with our digital assets initiative and other expenses, partly offset by lower sales and business development expenses, occupancy expenses, contractual gold payments and depreciation and amortization expenses.

•

Other Income/(Expenses) – Other income/(expenses) includes interest income and interest expense, gains on revaluation of deferred consideration—gold payments, impairments and other net losses. For the three months ended September 30, 2022 and 2021, the gains on revaluation of deferred consideration—gold payments were $77.9 million and $1.7 million, respectively. In addition, during the three months ended September 30, 2022 we recognized losses on our securities owned and investments of $6.3 million.

•

Net income – We reported net income of $81.2 million during the three months ended September 30, 2022, compared to net income of $5.8 million during the three months ended September 30, 2021. The change in net income was primarily due to the gain on revaluation of deferred consideration—gold payments.

Expense Guidance Update for the Year Ending December 31, 2022

Compensation Expense

Our compensation expense for the year ending December 31, 2022 is currently estimated to range from $96.0 million to $99.0 million (unchanged from the three months ended June 30, 2022).

Discretionary Spending

Discretionary spending includes marketing, sales, professional fees, occupancy and equipment, depreciation and amortization and other expenses. We currently estimate our discretionary spending for the year ending December 31, 2022 to range from $50.0 million to $51.0 million (previously $51.0 million to $53.0 million).

Not included in the guidance above are non-recurring expenses of $4.5 million incurred during the six months ended June 30, 2022 in response to an activist campaign. We do not anticipate any significant activist campaign expenses during the remainder of 2022.

Gross Margin

We define gross margin as total operating revenues less fund management and administration expenses. Gross margin percentage is calculated as gross margin divided by total operating revenues. At current AUM and flow levels, we estimate our gross margin percentage will be 78% to 79% for the year ending December 31, 2022 (previously 79%).

Contractual Gold Payments

We currently estimate our contractual gold payments expense for the year ending December 31, 2022 to be approximately $17.0 million (unchanged from the three months ended June 30, 2022) taking into consideration current gold prices.

Third-Party Distribution Expense

We currently estimate third-party distribution expense to be approximately $8.0 million (previously $8.5 million) as recent market volatility has suppressed AUM growth on our third-party platforms.

Income Tax Expense

We currently estimate that our consolidated normalized effective tax rate will be 22% for the year ending December 31, 2022 (previously 21% to 22%). This estimated rate may change and is dependent upon our actual taxable income earned in relation to our forecasts as well as any other items that may arise that are not currently forecasted. Such items may include, but are not limited to, any revaluation on deferred consideration—gold payments, reductions in unrecognized tax benefits and any stock-based compensation windfalls or shortfalls.

Key Operating Statistics

The following table presents key operating statistics that serve as indicators for the performance of our business:


	Three Months Ended									Nine Months Ended
	September 30, 2022			June 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
GLOBAL ETPs (in millions)
Beginning of period assets	$	74,292		$	79,384		$	73,918		$	77,450		$	67,365
Inflows/(outflows)		1,747			3,852			548			6,918			2,758
Market (depreciation)/appreciation		(5,162	)		(8,940	)		(1,711	)		(13,487	)		2,636
Fund closures		—			(4	)		—			(4	)		(4	)

End of period assets	$	70,877		$	74,292		$	72,755		$	70,877		$	72,755

Average assets during the period	$	74,681		$	77,735		$	74,527		$	76,735		$	72,559
Average ETP advisory fee during the period		0.38%			0.39%			0.41%			0.39%			0.41%
Revenue days		92			91			92			273			273
Number of ETPs—end of period		347			344			322			347			322

U.S. LISTED ETFs (in millions)
Beginning of period assets	$	47,255		$	48,622		$	45,129		$	48,210		$	38,517
Inflows/(outflows)		3,812			4,278			612			10,340			3,085
Market (depreciation)/appreciation		(3,024	)		(5,645	)		(999	)		(10,507	)		3,140

End of period assets	$	48,043		$	47,255		$	44,742		$	48,043		$	44,742

Average assets during the period	$	49,473		$	48,278		$	45,507		$	48,418		$	43,465
Number of ETFs—end of the period		78			77			73			78			73

EUROPEAN LISTED ETPs (in millions)
Beginning of period assets	$	27,037		$	30,762		$	28,789		$	29,240		$	28,848
(Outflows)/inflows		(2,065	)		(426	)		(64	)		(3,422	)		(327	)
Market (depreciation)/appreciation		(2,138	)		(3,295	)		(712	)		(2,980	)		(504	)
Fund closures		—			(4	)		—			(4	)		(4	)

End of period assets	$	22,834		$	27,037		$	28,013		$	22,834		$	28,013

Average assets during the period	$	25,208		$	29,457		$	29,020		$	28,317		$	29,094
Number of ETPs—end of period		269			267			249			269			249

PRODUCT CATEGORIES (in millions)
U.S. Equity
Beginning of period assets	$	21,058		$	23,738		$	21,285		$	23,860		$	18,367
Inflows/(outflows)		1,239			306			351			2,324			760
Market (depreciation)/appreciation		(1,344	)		(2,986	)		(253	)		(5,231	)		2,256

End of period assets	$	20,953		$	21,058		$	21,383		$	20,953		$	21,383

Average assets during the period	$	22,540		$	22,370		$	21,792		$	22,683		$	20,698

Commodity & Currency
Beginning of period assets	$	23,625		$	26,302		$	24,772		$	24,598		$	25,878
(Outflows)/inflows		(2,179	)		(475	)		(249	)		(3,707	)		(1,228	)
Market (depreciation)/appreciation		(1,885	)		(2,202	)		(698	)		(1,330	)		(825	)

End of period assets	$	19,561		$	23,625		$	23,825		$	19,561		$	23,825

Average assets during the period	$	21,628		$	25,771		$	24,850		$	24,429		$	25,230

Fixed Income
Beginning of period assets	$	9,191		$	5,416		$	3,435		$	4,351		$	3,305
Inflows/(outflows)		2,627			4,038			115			7,907			293
Market (depreciation)/appreciation		(124	)		(263	)		(26	)		(564	)		(74	)

End of period assets	$	11,694		$	9,191		$	3,524		$	11,694		$	3,524

Average assets during the period	$	10,077		$	7,424		$	3,496		$	7,396		$	3,352


	Three Months Ended									Nine Months Ended
	September 30, 2022			June 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
International Developed Market Equity
Beginning of period assets	$	9,958		$	11,401		$	10,772		$	11,870		$	9,392
(Outflows)/inflows		(115	)		79			404			61			820
Market (depreciation)/appreciation		(661	)		(1,522	)		(17	)		(2,749	)		947

End of period assets	$	9,182		$	9,958		$	11,159		$	9,182		$	11,159

Average assets during the period	$	10,027		$	10,682		$	11,126		$	10,744		$	10,469

Emerging Market Equity
Beginning of period assets	$	8,386		$	9,991		$	11,519		$	10,375		$	8,539
Inflows/(outflows)		114			(223	)		(149	)		80			2,044
Market (depreciation)/appreciation		(1,005	)		(1,382	)		(704	)		(2,960	)		83

End of period assets	$	7,495		$	8,386		$	10,666		$	7,495		$	10,666

Average assets during the period	$	8,329		$	9,155		$	11,038		$	9,200		$	10,642

Leveraged & Inverse
Beginning of period assets	$	1,618		$	1,856		$	1,691		$	1,775		$	1,475
Inflows/(outflows)		45			90			41			133			34
Market (depreciation)/appreciation		(140	)		(328	)		(69	)		(385	)		154

End of period assets	$	1,523		$	1,618		$	1,663		$	1,523		$	1,663

Average assets during the period	$	1,589		$	1,765		$	1,715		$	1,728		$	1,644

Alternatives
Beginning of period assets	$	305		$	293		$	198		$	261		$	215
Inflows/(outflows)		16			34			22			79			(17	)
Market (depreciation)/appreciation		(15	)		(22	)		2			(34	)		24

End of period assets	$	306		$	305		$	222		$	306		$	222

Average assets during the period	$	313		$	299		$	214		$	296		$	223

Cryptocurrency
Beginning of period assets	$	151		$	383		$	229		$	357		$	168
Inflows/(outflows)		—			3			12			40			56
Market appreciation/(depreciation)		12			(235	)		54			(234	)		71

End of period assets	$	163		$	151		$	295		$	163		$	295

Average assets during the period	$	178		$	265		$	277		$	256		$	280

Closed ETPs
Beginning of period assets	$	—		$	4		$	17		$	3		$	26
Inflows/(outflows)		—			—			1			1			(4	)
Fund closures		—			(4	)		—			(4	)		(4	)

End of period assets	$	—		$	—		$	18		$	—		$	18

Average assets during the period	$	—		$	4		$	19		$	3		$	21

Headcount:		274			264			235			274			235

Note: Previously issued statistics may be restated due to fund closures and trade adjustments

Source: WisdomTree

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

Selected Operating and Financial Information


	Three Months Ended September 30,				Change		Percent Change
AUM (in millions)	2022		2021		Change		Percent Change
Average AUM	$	74,681	$	74,527	$	154		0.2%


Operating Revenues (in thousands)
Advisory fees	$	70,616	$	76,400	$	(5,784)		(7.6%)
Other income		1,798		1,712		86		5.0%

Total revenues	$	72,414	$	78,112	$	(5,698)		(7.3%)

Average AUM

Our average AUM was essentially unchanged from the three months ended September 30, 2021.

Operating Revenues

Advisory fees

Advisory fee revenues decreased 7.6% from $76.4 million during the three months ended September 30, 2021 to $70.6 million in the comparable period in 2022 due to a lower average advisory fee. Our average advisory fee was 0.38% during the three months ended September 30, 2022 and 0.41% during the same period in 2021.

Other income

Other income increased 5.0% from $1.7 million during the three months ended September 30, 2021 to $1.8 million in the comparable period in 2022 primarily due to higher fees associated with our European listed products.

Operating Expenses


	Three Months Ended September 30,				Change			Percent Change
(in thousands)		2022		2021	Change			Percent Change
Compensation and benefits	$	23,714	$	22,027	$	1,687			7.7%
Fund management and administration		16,285		15,181		1,104			7.3%
Marketing and advertising		3,145		2,925		220			7.5%
Sales and business development		2,724		2,935		(211	)		(7.2%)
Contractual gold payments		4,105		4,250		(145	)		(3.4%)
Professional fees		2,367		1,583		784			49.5%
Occupancy, communications and equipment		986		1,163		(177	)		(15.2%)
Depreciation and amortization		58		185		(127	)		(68.6%)
Third-party distribution fees		1,833		1,873		(40	)		(2.1%)
Other		2,324		1,787		537			30.1%

Total operating expenses	$	57,541	$	53,909	$	3,632			6.7%


	Three Months Ended September 30,
As a Percent of Revenues:	2022		2021
Compensation and benefits		32.7%		28.3%
Fund management and administration		22.5%		19.4%
Marketing and advertising		4.3%		3.7%
Sales and business development		3.8%		3.8%
Contractual gold payments		5.7%		5.4%
Professional fees		3.3%		2.0%
Occupancy, communications and equipment		1.4%		1.5%
Depreciation and amortization		0.1%		0.2%
Third-party distribution fees		2.5%		2.4%
Other		3.2%		2.3%

Total operating expenses		79.5%		69.0%

Compensation and benefits

Compensation and benefits expense increased 7.7% from $22.0 million during the three months ended September 30, 2021 to $23.7 million in the comparable period in 2022 due to higher incentive compensation and headcount. Headcount was 235 and 274 at September 30, 2021 and 2022, respectively.

Fund management and administration

Fund management and administration expense increased 7.3% from $15.2 million during the three months ended September 30, 2021 to $16.3 million in the comparable period in 2022 due to higher AUM and transaction fees associated with our U.S. listed products, partly offset by lower European-listed AUM.

Marketing and advertising

Marketing and advertising expense increased 7.5% from $2.9 million during the three months ended September 30, 2021 to $3.1 million in the comparable period in 2022 primarily due to higher spending on online and television marketing campaigns.

Sales and business development

Sales and business development expense decreased 7.2% from $2.9 million during the three months ended September 30, 2021 to $2.7 million in the comparable period in 2022 primarily due to lower spending on sales tools.

Contractual gold payments

Contractual gold payments expense decreased 3.4% from $4.3 million during the three months ended September 30, 2021 to $4.1 million in the comparable period in 2022. This expense was associated with the payment of 2,375 ounces of gold and was calculated using the average daily spot price of $1,789 and $1,728 per ounce during the three months ended September 30, 2021 and 2022, respectively.

Professional fees

Professional fees increased 49.5% from $1.6 million during the three months ended September 30, 2021 to $2.4 million in the comparable period in 2022 due to spending related to our digital assets initiative.

Occupancy, communications and equipment

Occupancy, communications and equipment expense decreased 15.2% from $1.2 million during the three months ended September 30, 2021 to $1.0 million in the comparable period in 2022 due to our reduced office footprint.

Depreciation and amortization

Depreciation and amortization expense decreased 68.6% from $0.2 million during the three months ended September 30, 2021 to $0.1 million in the comparable period in 2022 due to lower spending on fixed assets.

Third-party distribution fees

Third-party distribution fees decreased 2.1% from $1.9 million during the three months ended September 30, 2021 to $1.8 million in the comparable period in 2022 primarily due to lower fees paid to our third-party marketing agent in Latin America, partly offset by new platform relationships in Europe.

Other

Other expenses increased 30.1% from $1.8 million during the three months ended September 30, 2021 to $2.3 million in the comparable period in 2022 due to higher insurance costs and other miscellaneous items.

Other Income/(Expenses)


	Three Months Ended September 30,				Change		Percent Change
(in thousands)	2022		2021		Change		Percent Change
Interest expense	$	(3,734)	$	(3,729)	$	(5)		0.1%
Gain on revaluation of deferred consideration—gold payments		77,895		1,737		76,158		4,384.5%
Interest income		811		689		122		17.7%
Impairments		—		(15,853)		15,853		(100%)
Other losses, net		(5,289)		(714)		(4,575)		640.8%

Total other income/(expenses), net	$	69,683	$	(17,870)	$	87,553		(489.9%)


	Three Months Ended September 30,
As a Percent of Revenues:	2022		2021
Interest expense		(5.2%)		(4.8%)
Gain on revaluation of deferred consideration—gold payments		107.6%		2.2%
Interest income		1.1%		0.9%
Impairments		—		(20.3%)
Other losses, net		(7.3%)		(0.9%)

Total other income/(expenses), net		96.2%		(22.9%)

Interest expense

Interest expense was essentially unchanged from the three months ended September 30, 2021. Our effective interest rate was 4.6% during the three months ended September 30, 2021 and 2022.

Gain on revaluation of deferred consideration

We recognized a non-cash gain on revaluation of deferred consideration of $1.7 million and $77.9 million during the three months ended September 30, 2021 and 2022, respectively. The gain in the current quarter arose primarily from an increase in the discount rate (from 9.0% to 12.3%) used to compute the present value of the annual payment obligations as well as lower spot gold prices. The magnitude of any gain or loss is highly correlated to changes in the discount rate and the magnitude of the change in the forward-looking price of gold.

Interest income

Interest income increased 17.7% from $0.7 million during the three months ended September 30, 2021 to $0.8 million in the comparable period in 2022 due to an increase in securities owned.

Impairments

During the three months ended September 30, 2021, we recognized a loss of approximately $15.8 million upon exiting our New York office, which is included in impairments in our Consolidated Statements of Operations. There were no impairment charges during the three months ended September 30, 2022.

Other losses, net

Other losses, net were ($0.7) million and ($5.3) million during the three months ended September 30, 2021 and 2022, respectively. During the three months ended September 30, 2022, we recognized losses on our securities owned and investments of $6.3 million.

Gains and losses also generally arise from the sale of gold earned from management fees paid by our physically-backed gold ETPs, foreign exchange fluctuations and other miscellaneous items.

Income taxes

Our effective income tax rate for the three months ended September 30, 2022 of 3.9% resulted in an income tax expense of $3.3 million. Our tax rate differs from the federal statutory rate of 21% primarily due to a non-taxable gain on revaluation of deferred consideration. This was partly offset by an increase in the deferred tax asset valuation allowance on losses recognized on securities owned.

Our effective income tax rate for the three months ended September 30, 2021 of 7.9% resulted in income tax expense of $0.5 million. Our effective income tax rate differs from the federal statutory tax rate of 21% primarily due to a lower tax rate on foreign earnings and a non-taxable gain on revaluation of deferred consideration, partly offset by higher non-deductible compensation.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Selected Operating and Financial Information


	Nine Months Ended September 30,				Change		Percent Change
	2022		2021		Change		Percent Change
Global AUM (in millions)
Average global AUM	$	76,735	$	72,559	$	4,176		5.8%


Revenues (in thousands)
Advisory fees	$	222,719	$	220,611	$	2,108		1.0%
Other income		5,316		4,532		784		17.3%

Total revenues	$	228,035	$	225,143	$	2,892		1.3%

Average Global AUM

Our average global AUM increased 5.8% from $72.6 billion at September 30, 2021 to $76.7 billion at September 30, 2022 due to net inflows, partly offset by market depreciation.

Operating Revenues

Advisory fees

Advisory fee revenues were essentially unchanged from the nine months ended September 30, 2021. Our average global advisory fee was 0.41% and 0.39% during the nine months ended September 30, 2021 and September 30, 2022, respectively.

Other income

Other income increased 17.3% from $4.5 million during the nine months ended September 30, 2021 to $5.3 million in the comparable period in 2022 primarily due to higher fees associated with our European listed products.

Operating Expenses


	Nine Months Ended September 30,				Change		Percent Change
(in thousands)	2022		2021		Change		Percent Change
Compensation and benefits	$	73,066	$	64,985	$	8,081		12.4%
Fund management and administration		47,855		43,495		4,360		10.0%
Marketing and advertising		11,062		9,525		1,537		16.1%
Sales and business development		8,464		7,239		1,225		16.9%
Contractual gold payments		13,001		12,834		167		1.3%
Professional fees		11,134		5,517		5,617		101.8%
Occupancy, communications and equipment		2,788		3,904		(1,116)		(28.6%)
Depreciation and amortization		158		693		(535)		(77.2%)
Third-party distribution fees		5,863		5,346		517		9.7%
Other		6,278		5,110		1,168		22.9%

Total operating expenses	$	179,669	$	158,648	$	21,021		13.3%


	Nine Months Ended September 30,
As a Percent of Revenues:	2022		2021
Compensation and benefits		31.9%		28.9%
Fund management and administration		21.0%		19.3%
Marketing and advertising		4.9%		4.2%
Sales and business development		3.7%		3.2%
Contractual gold payments		5.7%		5.7%
Professional fees		4.9%		2.5%
Occupancy, communications and equipment		1.2%		1.7%
Depreciation and amortization		0.1%		0.3%
Third-party distribution fees		2.6%		2.4%
Other		2.8%		2.3%

Total operating expenses		78.8%		70.5%

Compensation and benefits

Compensation and benefits expense increased 12.4% from $65.0 million during the nine months ended September 30, 2021 to $73.1 million in the comparable period in 2022 due to higher incentive compensation and headcount.

Fund management and administration

Fund management and administration expense increased 10.0% from $43.5 million during the nine months ended September 30, 2021 to $47.9 million in the comparable period in 2022 primarily due to higher average global AUM.

Marketing and advertising

Marketing and advertising expense increased 16.1% from $9.5 million during the nine months ended September 30, 2021 to $11.1 million in the comparable period in 2022 due to higher spending on online and television marketing campaigns.

Sales and business development

Sales and business development expense increased 16.9% from $7.2 million during the nine months ended September 30, 2021 to $8.5 million in the comparable period in 2022 primarily due to higher spending on conferences and market data.

Contractual gold payments

Contractual gold payments expense increased 1.3% from $12.8 million during the nine months ended September 30, 2021 to $13.0 million in the comparable period in 2022. This expense was associated with the payment of 7,125 ounces of gold and was calculated using the average daily spot price of $1,801 and $1,825 per ounce during the nine months ended September 30, 2021 and 2022, respectively.

Professional fees

Professional fees increased 101.8% from $5.5 million during the nine months ended September 30, 2021 to $11.1 million in the comparable period in 2022 due to $4.5 million of expenses incurred in response to an activist campaign and spending related to our digital assets initiative.

Occupancy, communications and equipment

Occupancy, communications and equipment expense decreased 28.6% from $3.9 million during the nine months ended September 30, 2021 to $2.8 million in the comparable period in 2022 due to our reduced office footprint.

Depreciation and amortization

Occupancy, communications and equipment expense decreased 77.2% from $0.7 million during the nine months ended September 30, 2021 to $0.2 million in the comparable period in 2022 due to lower spending on fixed assets.

Third-party distribution fees

Third-party distribution fees increased 9.7% from $5.3 million during the nine months ended September 30, 2021 to $5.9 million in the comparable period in 2022 due to new platform relationships in Europe, higher U.S. listed AUM on third-party platforms, partly offset by lower fees paid to our third-party marketing agent in Latin America.

Other

Other expenses increased 22.9% from $5.1 million during the nine months ended September 30, 2021 to $6.3 million in the comparable period in 2022 due to miscellaneous expenses incurred in response to an activist campaign, higher insurance costs and other miscellaneous matters.

Other Income/(Expenses)


	Nine Months Ended September 30,				Change		Percent Change
(in thousands)	2022		2021		Change		Percent Change
Interest expense	$	(11,199)	$	(8,592)	$	(2,607)		30.3%
Gain on revaluation of deferred consideration—gold payments		63,188		5,066		58,122		1,147.3%
Interest income		2,375		1,145		1,230		107.4%
Impairments		—		(16,156)		16,156		(100.0%)
Other losses, net		(34,470)		(6,558)		(27,912)		425.6%

Total other income/(expenses), net	$	19,894	$	(25,095)	$	44,989		(179.3%)


	Nine Months Ended September 30,
As a Percent of Revenues:	2022		2021
Interest expense		(4.9%)		(3.8%)
Gain on revaluation of deferred consideration—gold payments		27.7%		2.3%
Interest income		1.0%		0.5%
Impairments		—		(7.2%)
Other losses, net		(15.1%)		(2.9%)

Total other income/(expenses), net		8.7%		(11.1%)

Interest expense

Interest expense increased 30.3% from $8.6 million during the nine months ended September 30, 2021 to $11.2 million in the comparable period in 2022 due to a higher level of debt outstanding and a higher effective interest rate. Our effective interest rate during the nine months ended September 30, 2021 and 2022 was 5.0% and 4.6%, respectively.

Gain on revaluation of deferred consideration

We recognized a gain on revaluation of deferred consideration of $5.1 million and $63.2 million, respectively, during the nine months ended September 30, 2021 and 2022. The gain in the current period arose primarily from an increase in the discount rate (from 9.0% to 12.3%) used to compute the present value of the annual payment obligations as well as lower spot gold prices. The magnitude of any gain or loss is highly correlated to changes in the discount rate and the magnitude of the change in the forward-looking price of gold.

Interest income

Interest income increased 107.4% from $1.1 million during the nine months ended September 30, 2021 to $2.4 million in the comparable period in 2022 due to an increase in our securities owned.

Impairments

During the nine months ended September 30, 2021, we recognized a loss of approximately $16.2 million upon exiting our London and New York offices, which is included in impairments in our Consolidated Statements of Operations. There were no impairment charges during the nine months ended September 30, 2022.

Other losses, net

Other losses, net were ($6.6) million and ($34.5) million during the nine months ended September 30, 2021 and 2022, respectively. The nine months ended September 30, 2022 includes a non-cash charge of $19.9 million arising from the release of a tax-related indemnification asset due to the favorable resolution of certain tax audits as well as the expiration of the statute of limitations (an equal and offsetting benefit has been recognized in income tax expense). We also recognized $15.6 million of losses on our securities owned.

Gains and losses also generally arise from the sale of gold earned from management fees paid by our physically-backed gold ETPs, foreign exchange fluctuations and other miscellaneous items.

Income taxes

Our effective income tax rate for the nine months ended September 30, 2022 was negative 15.7%, resulting in an income tax benefit of $10.7 million. Our tax rate differs from the federal statutory rate of 21% primarily due to the reduction in unrecognized tax benefits associated with the release of the tax-related indemnification asset described above, a non-taxable gain on revaluation of deferred consideration and a lower tax rate on foreign earnings. These items were partly offset by an increase in the deferred tax asset valuation allowance on losses recognized on securities owned.

Our effective income tax rate for the nine months ended September 30, 2021 of 6.7% resulted in income tax expense of $2.8 million. Our effective income tax rate differs from the federal statutory rate of 21% primarily due to a $5.2 million reduction in unrecognized tax benefits, a lower tax rate on foreign earnings and a non-taxable gain on revaluation of deferred consideration. These items were partly offset by tax shortfalls associated with the vesting and exercise of stock-based compensation and non-deductible executive compensation.

Non-GAAP Financial Measurements

In an effort to provide additional information regarding our results as determined by GAAP, we also disclose certain non-GAAP information which we believe provides useful and meaningful information. Our management reviews these non-GAAP financial measurements when evaluating our financial performance and results of operations; therefore, we believe it is useful to provide information with respect to these non-GAAP measurements so as to share this perspective of management. Non-GAAP measurements do not have any standardized meaning, do not replace nor are superior to GAAP financial measurements and are unlikely to be comparable to similar measures presented by other companies. These non-GAAP financial measurements should be considered in the context with our GAAP results. The non-GAAP financial measurements contained in this Report include:

Adjusted Net Income and Diluted Earnings per Share

We disclose adjusted net income and adjusted diluted earnings per share as non-GAAP financial measurements in order to report our results exclusive of items that are non-recurring or not core to our operating business. We believe presenting these non-GAAP financial measurements provides investors with a consistent way to analyze our performance. These non-GAAP financial measurements exclude the following:

Unrealized gains on the revaluation of deferred consideration: Deferred consideration is an obligation we assumed in connection with the ETFS Acquisition that is carried at fair value. This item represents the present value of an obligation to pay fixed ounces of gold into perpetuity and is measured using forward-looking gold prices. Changes in the forward-looking price of gold and changes in the discount rate used to compute the present value of the annual payment obligations may have a material impact on the carrying value of the deferred consideration and our reported financial results. We exclude this item when calculating our non-GAAP financial measurements as it is not core to our operating business. The item is not adjusted for income taxes as the obligation was assumed by a wholly-owned subsidiary of ours that is based in Jersey, a jurisdiction where we are subject to a zero percent tax rate.

Gains or losses on securities owned: We account for securities owned as trading securities which requires these instruments to be measured at fair value with gains and losses reported in net income. In the third quarter of 2021, we began excluding these items when calculating our non-GAAP financial measurements as these securities have become a more meaningful percentage of total assets and the gains and losses introduce volatility in earnings and are not core to our operating business.

Tax shortfalls and windfalls upon vesting and exercise of stock-based compensation awards: GAAP requires the recognition of tax windfalls and shortfalls within income tax expense. These items arise upon the vesting and exercise of stock-based compensation awards and the magnitude is directly correlated to the number of awards vesting/exercised as well as the difference between the price of our stock on the date the award was granted and the date the award vested or was exercised. We exclude these items when calculating our non-GAAP financial measurements as they introduce volatility in earnings and are not core to our operating business.

Other items: Unrealized gains and losses recognized on our investments, changes in the deferred tax asset valuation allowance on securities owned, expenses incurred in response to an activist campaign and impairment charges.


	Three Months Ended								Nine Months Ended
Adjusted Net Income and Diluted Earnings per Share:	September 30, 2022				September 30, 2021				September 30, 2022				September 30, 2021
Net income, as reported		$	81,229			$	5,833			$	78,973			$	38,610
Deduct: Gain on revaluation of deferred consideration			(77,895	)			(1,737	)			(63,188	)			(5,066	)
Add back: Losses on securities owned, net of income taxes			4,778				1,006				11,836				1,006
Add back: Increase in deferred tax asset valuation allowance on securities owned			1,454				—				4,365
Deduct/add back: Unrealized gain recognized on our investments, net of income taxes			(248	)			—				(179	)			(284	)
Add back/deduct: Tax shortfalls/(windfalls) upon vesting and exercise of stock-based compensation awards			4				—				(541	)			(110	)
Add back: Expenses incurred in response to an activist campaign, net of income taxes			—				—				3,376
Add back: Impairments, net of income taxes (where applicable)			—				12,002				—				12,247
Deduct: Gain recognized upon sale of Canadian ETF business							(787	)							(787	)

Adjusted net income		$	9,322			$	16,317			$	34,642			$	45,616
Deduct: Income distributed to participating securities			(546	)			(538	)			(1,644	)			(1,634	)
Deduct: Undistributed income allocable to participating securities			(503	)			(1,275	)			(2,266	)			(3,422	)

Adjusted net income available to common stockholders		$	8,273			$	14,504			$	30,732			$	40,560
Weighted average diluted shares, excluding participating securities (in thousands) (See Note 18 to our Consolidated Financial Statements)			143,407				143,142				143,245				145,604

Adjusted earnings per share—diluted		$	0.06			$	0.10			$	0.21			$	0.28

Liquidity and Capital Resources

The following table summarizes key data regarding our liquidity, capital resources and use of capital to fund our operations:


	September 30, 2022			December 31, 2021
Balance Sheet Data (in thousands):
Cash and cash equivalents	$	132,700		$	140,709
Securities owned, at fair value		125,110			127,166
Accounts receivable		25,306			31,864
Securities held-to-maturity		267			308

Total: Liquid assets		283,383			300,047
Less: Total current liabilities⁽¹⁾		(79,485	)		(83,667	)
Less: Regulatory capital requirement—certain international subsidiaries		(23,144	)		(12,320	)

Total: Available liquidity	$	180,754		$	204,060

⁽¹⁾

Excludes convertible notes in the amount of $173,760 at September 30, 2022, net of premiums and unamortized issuance costs, scheduled to mature on June 15, 2023, as we are actively exploring refinancing and extension alternatives.


	Nine Months Ended September 30,
	2022			2021
Cash Flow Data (in thousands):
Operating cash flows	$	43,113		$	50,109
Investing cash flows		(25,626	)		(92,467	)
Financing cash flows		(17,939	)		97,350
Foreign exchange rate effect		(7,557	)		(493	)

Net (decrease)/increase in cash and cash equivalents	$	(8,009	)	$	54,499

Liquidity

We consider our available liquidity to be our liquid assets, less our current liabilities and regulatory capital requirements of certain international subsidiaries. Liquid assets consist of cash and cash equivalents, securities owned, at fair value, accounts receivable and securities held-to-maturity. Our securities owned, at fair value are highly liquid investments. Accounts receivable are current assets and primarily represent receivables from advisory fees we earn from our ETPs. Our current liabilities, excluding convertible notes in the amount of $173,760 scheduled to mature on June 15, 2023, consist primarily of payments owed to vendors and third parties in the normal course of business, deferred consideration and accrued incentive compensation for employees.

Cash and cash equivalents decreased $8.0 million during the nine months ended September 30, 2022 due to $41.2 million used to purchase securities owned, $11.9 million used to purchase investments, $14.5 million used to pay dividends on our common stock, $3.4 million used to repurchase our common stock, $7.6 million of foreign exchange rate losses and $0.2 million used in other activities. These decreases were partly offset by $27.7 million of proceeds from the sale of securities owned and $43.1 million of net cash provided by operating activities.

Cash and cash equivalents increased $54.5 million during the nine months ended September 30, 2021 due to $150.0 million of proceeds received from the issuance of the 2021 Notes, $50.1 million of net cash provided by operating activities, $11.0 million of proceeds from the sale of securities owned and $0.3 million provided by other activities. These increases were partly offset by $97.6 million used to purchase securities owned, $34.5 million used to repurchase our common stock, $14.7 million used to pay dividends on our common stock, $5.8 million used to purchase investments and $4.3 million used to pay the 2021 Note issuance costs.

Issuance of Convertible Notes

On June 14, 2021, we issued and sold $150.0 million in aggregate principal amount of 3.25% Convertible Senior Notes due 2026 (the “2021 Notes”) pursuant to an indenture dated June 14, 2021, between us and U.S. Bank National Association, as trustee, in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (“Rule 144A”).

On June 16, 2020, we issued and sold $150.0 million in aggregate principal amount of 4.25% Convertible Senior Notes due 2023 (the “June 2020 Notes”) pursuant to an indenture dated June 16, 2020, between us and the trustee, in a private offering to qualified institutional buyers pursuant to Rule 144A. On August 13, 2020, we issued and sold $25.0 million in aggregate principal amount of 4.25% Convertible Senior Notes due 2023 at a price equal to 101% of the principal amount thereof, plus interest deemed to have accrued since June 16, 2020, which constitute a further issuance of, and form a single series with, our June 2020 Notes (the “August 2020 Notes” and together with the June 2020 Notes, the “2020 Notes”).

After the issuance of the 2021 Notes (and together with the 2020 Notes, the “Convertible Notes”), we had $325.0 million aggregate principal amount of Convertible Notes outstanding.

Key terms of the Convertible Notes are as follows:


	2021 Notes	2020 Notes
Maturity date (unless earlier converted, repurchased or redeemed)	June 15, 2026	June 15, 2023
Interest rate	3.25%	4.25%
Conversion price	$11.04	$5.92
Conversion rate	90.5797	168.9189
Redemption price	$14.35	$7.70

•

Interest rate: Payable semiannually in arrears on June 15 and December 15 of each year.

•

Conversion price: Convertible at an initial conversion rate (as disclosed in the table above) of shares of our common stock per $1,000 principal amount of notes (equivalent to an initial conversion price as disclosed in the table above).

•

Conversion: Holders may convert at their option at any time prior to the close of business on the business day immediately preceding March 15, 2026 and March 15, 2023 in respect of the 2021 Notes and 2020 Notes, respectively, only under the following circumstances: (i) if the last reported sale price of our 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 our common stock and the conversion rate on each such trading day; (iii) upon a notice of redemption delivered by us in accordance with the terms of the indentures 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, 2026 and March 15, 2023 in respect of the 2021 Notes and 2020 Notes, respectively, 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, we will pay cash up to the aggregate principal amount of the Convertible Notes to be converted. At our election, we will also settle our conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted in either cash, shares of our common stock or a combination of cash and shares of our common stock.

•

Redemption price: We may redeem for cash all or any portion of the notes, at our option, on or after June 20, 2023 and June 20, 2021 in respect of the 2021 Notes and 2020 Notes, respectively, and on or prior to the 55^th scheduled trading day immediately preceding the maturity date, if the last reported sale price of our 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 we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide 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 us 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 indentures) 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 144.9275 shares and 270.2702 shares of our common stock per $1,000 principal amount of the 2021 Notes and 2020 Notes, respectively (the equivalent of 69,036,410 shares of our common stock), subject to adjustment.

•

Seniority and Security: The 2021 Notes and 2020 Notes rank equal in right of payment, and are our senior unsecured obligations, but are subordinated in right of payment to our obligations to make certain redemption payments (if and when due) in respect of our Series A Non-Voting Convertible Preferred Stock (See Note 10 to our Consolidated Financial Statements).

The indentures contain 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.

Capital Resources

Our principal source of financing is our operating cash flow. We believe that cash flows generated by our operating activities and existing cash balances should be sufficient for us to fund our operations for the foreseeable future.

Our ability to satisfy our contractual obligations as they arise are discussed in the section titled “Contractual Obligations” below.

Use of Capital

Our business does not require us to maintain a significant cash position. However, certain of our international subsidiaries are required to maintain a minimum level of regulatory capital, which at September 30, 2022 was approximately $23.1 million in the aggregate. Notwithstanding these regulatory capital requirements, we expect that our main uses of cash will be to fund the ongoing operations of our business. We also maintain a capital return program which includes a $0.03 per share quarterly cash dividend and authority to purchase our common stock through April 27, 2025, including purchases to offset future equity grants made under our equity plans.

During the three months ended September 30, 2022, we repurchased 4,567 shares of our common stock under the repurchase program for an aggregate cost of $0.02 million. As of September 30, 2022, $100 million remains under this program for future purchases.

Contractual Obligations

Convertible Notes

At September 30, 2022, we had $325.0 million aggregate principal amount of Convertible Notes outstanding, of which $175.0 million are scheduled to mature on June 15, 2023 and $150.0 million are scheduled to mature on June 15, 2026, unless earlier converted, repurchased or redeemed. Conditional conversions or a requirement to repurchase the Convertible Notes upon the occurrence of a fundamental change may accelerate payment.

The Convertible Notes require cash settlement of the principal amount, while settlement of the conversion obligation in excess of the aggregate principal amount may be satisfied in either cash, shares of our common stock or a combination of cash and shares of our common stock. We anticipate refinancing or extending these obligations when due and are currently actively exploring refinancing and extension alternatives with respect to the 2020 Notes.

See the section titled “Issuance of Convertible Notes” above for additional information.

Deferred Consideration—Gold Payments

Deferred consideration represents an obligation we assumed in April 2018 in connection with our acquisition of the European exchange-traded commodity, currency and leveraged and inverse business of ETFS Capital Limited. The obligation is for fixed payments to ETFS Capital Limited 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 present value of the deferred consideration was $164.8 million at September 30, 2022.

The Contractual Gold Payments are paid from advisory fee income generated by any of our sponsored financial products backed by physical gold with no recourse back to us for any unpaid amounts that exceed advisory fees earned.

See Note 9 to our Consolidated Financial Statements for additional information.

Operating Leases

In keeping with our hybrid remote-first philosophy, employees primarily work remotely on a permanent basis. However, we maintain office space in New York and London, as well as other regional locations, to align with employees choosing to collaborate in person.

Total future minimum lease payments with respect to our office space was $1.8 million at September 30, 2022. Cash flows generated by our operating activities and existing cash balances should be sufficient to satisfy the future minimum lease payments. See Note 12 to our Consolidated Financial Statements for additional information.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet financing or other arrangements and have neither created nor are party to any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating our business.

Critical Accounting Policies

Goodwill and Intangible Assets

Goodwill is the excess of the purchase price over the fair values of the identifiable net assets at the acquisition date. We test 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 our U.S. business and European business components. For impairment testing purposes, these components are aggregated as a single reporting unit as they fall under the same operating segment and have similar economic characteristics.

Goodwill is assessed for impairment annually on November 30^th. When performing our goodwill impairment test, we consider a qualitative assessment, when appropriate, the market approach and its market capitalization when determining the fair value of the reporting unit. The results of our analysis indicated no impairment based upon a quantitative assessment.

Indefinite-lived intangible assets are tested for impairment at least annually and are 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 value is less than their carrying value. We may rely on a qualitative assessment when performing our 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 our intangible assets is November 30^th.

Investments

We account for equity investments that do not have a readily determinable fair value under the measurement alternative prescribed in 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.

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. The weighted average forward-looking gold price per ounce, discount rate and perpetual growth rate were $2,037, 12.3% and 1.5%, respectively, at September 30, 2022. Changes in the fair value of this obligation are reported as gain on revaluation of deferred consideration—gold payments in our Consolidated Statements of Operations.

During the three months ended September 30, 2022, we reported a gain on deferred consideration—gold payments of $77.9 million. A 1.0% increase in the weighted average forward-looking gold price per ounce would have reduced this reported gain by $1.1 million, a 1 percentage point increase in the discount rate would have increased this reported gain by $12.9 million and a 1 percentage point increase in the perpetual growth rate would have reduced this reported gain by $9.3 million. See Note 9 to our Consolidated Financial Statements for additional information.

Revenue Recognition

We earn substantially all of our revenue in the form of advisory fees from our ETPs and recognize 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 we have a right to invoice.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following information, together with information included in other parts of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, describes key aspects of our market risk.

Market Risk

Market risk to us generally represents the risk of changes in the value of our ETPs that results from fluctuations in securities or commodity prices, foreign currency exchange rates against the U.S. dollar, and interest rates. Nearly all our revenues are derived from advisory agreements for the WisdomTree ETPs. Under these agreements, the advisory fee we receive is based on the average market value of the assets in the WisdomTree ETP portfolios we manage.

Fluctuations in the value of the ETPs are common and are generated by numerous factors such as market volatility, the global economy, inflation, changes in investor strategies and sentiment, availability of alternative investment vehicles, domestic and foreign government regulations, emerging markets developments and others. Accordingly, changes in any one or a combination of these factors may reduce the value of investment securities and, in turn, the underlying AUM on which our revenues are earned. These declines may cause investors to withdraw funds from our ETPs in favor of investments that they perceive as offering greater opportunity or lower risk, thereby compounding the impact on our revenues. We believe challenging and volatile market conditions will continue to be present in the foreseeable future.

Interest Rate Risk

We invest our corporate cash in short-term interest earning assets, primarily in federal agency debt instruments, WisdomTree fixed income ETFs, U.S. treasuries, corporate bonds, money market instruments at a commercial bank and other securities which totaled $139.0 million and $125.7 million as of December 31, 2021 and September 30, 2022, respectively. During the nine months ended September 30, 2022, we recognized losses on these securities of $15.6 million and any losses recognized in the future may be material to our operating results. We do not anticipate that changes in interest rates will have a material impact on our financial condition or cash flows.

In addition, our Convertible Notes bear interest at fixed rates of 3.25% and 4.25% for the 2021 Notes and the 2020 Notes, respectively. Therefore, we have no direct financial statement risk associated with changes in interest rates. However, the fair value of the Convertible Notes changes primarily when the market price of our common stock fluctuates or interest rates change.

Exchange Rate Risk

We are subject to currency translation exposure on the results of our non-U.S. operations, primarily in the United Kingdom and Europe. Foreign currency translation risk is the risk that exchange rate gains or losses arise from translating foreign entities’ statements of earnings and balance sheets from functional currency to our reporting currency (the U.S. dollar) for consolidation purposes. The advisory fees earned on our international listed ETPs are predominantly in U.S. dollars (and also paid in gold ounces, as described below); however, expenses for corporate overhead are generally incurred in British pounds. Currently, we do not enter into derivative financial instruments aimed at offsetting certain exposures in the statement of operations or the balance sheet but may seek to do so in the future.

Exchange rate risk associated with the euro is not considered to be significant.

Commodity and Cryptocurrency Price Risk

Fluctuations in the prices of commodities and cryptocurrencies that are linked to certain of our ETPs could have a material adverse effect on our AUM and revenues. In addition, a portion of the advisory fee revenues we receive on our ETPs backed by gold, other precious metals and cryptocurrencies are paid in the underlying metal or cryptocurrency. In addition, we pay gold ounces to satisfy our deferred consideration obligation (See Note 9 to our Consolidated Financial Statements). While we readily sell the gold, precious metals and cryptocurrencies that we earn under these advisory contracts, we still may maintain a position. We currently do not enter into arrangements to hedge against fluctuations in the price of these commodities and cryptocurrencies and any hedging we may undertake in the future may not be cost-effective or sufficient to hedge against this exposure.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of September 30, 2022, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) promulgated under the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2022, our disclosure controls and procedures were effective at a reasonable assurance level in ensuring that material information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules, regulations and forms of the SEC, including ensuring that such material information is accumulated by and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the quarter ended September 30, 2022, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We may be subject to reviews, inspections and investigations by the SEC, Commodity Futures Trading Commission (CFTC), National Futures Association (NFA), state and foreign regulators, as well as legal proceedings arising in the ordinary course of business. See Note 13 to our Consolidated Financial Statements for additional information regarding claims brought by investors in our WisdomTree WTI Crude Oil 3x Daily Leveraged ETP totaling approximately €15.8 million ($15.4 million).

ITEM 1A. RISK FACTORS

You should carefully consider the information set forth in Part 1, Item1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as amended, and Quarterly Report on Form 10-Q for the quarter ended June 30, 2022.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent sales of Unregistered Securities

None.

Use of Proceeds

Not applicable.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table provides information with respect to purchases made by or on behalf of the Company or any “affiliated purchaser” of shares of our common stock.


	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
Period							(in thousands)
July 1, 2022 to July 31, 2022		—	$	—		—
August 1, 2022 to August 31, 2022		—	$	—		—
September 1, 2022 to September 30, 2022		4,567	$	5.24		4,567

Total		4,567	$	5.24		4,567	$	99,976

On February 22, 2022, our board of directors approved an increase of $85.7 million to our share repurchase program and extended the term for three years through April 27, 2025. During the three months ended September 30, 2022, we repurchased 4,567 shares of our common stock under this program for an aggregate cost of approximately $0.02 million. As of September 30, 2022, $100.0 million remained under this program for future repurchases.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None


Delaware		13-3487784
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

250 West 34 th Street 3 rd Floor New York, New York		10119
(Address of principal executive offices)		(Zip Code)


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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	81,229	$	5,833	$	78,973	$	38,610
Other comprehensive loss
Foreign currency translation adjustment, net of income taxes		(3,684)		(302)		(5,891)		(249)

Other comprehensive loss		(3,684)		(302)		(5,891)		(249)

Comprehensive income	$	77,545	$	5,531	$	73,082	$	38,361


PART I:	FINANCIAL INFORMATION	4

ITEM 1.	Financial Statements	4

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	51

ITEM 4.	Controls and Procedures	52

PART II:	OTHER INFORMATION	52

ITEM 1.	Legal Proceedings	52

ITEM 1A.	Risk Factors	52

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52

ITEM 3.	Default Upon Senior Securities	53

ITEM 4.	Mine Safety Disclosures	53

ITEM 5.	Other Information	53

ITEM 6.	Exhibits	54


	For the Three Months Ended September 30, 2022
	Common Stock					Additional Paid-In Capital			Accumulated Other Comprehensive Income			(Accumulated Deficit)/Retained Earnings			Total
	Shares Issued			Par Value		Additional Paid-In Capital			Accumulated Other Comprehensive Income			(Accumulated Deficit)/Retained Earnings			Total
Balance—July 1, 2022		146,511		$	1,465	$	286,854		$	(1,525	)	$	(29,538	)	$	257,256
Restricted stock issued and vesting of restricted stock units, net		13			—		—			—			—			—
Shares repurchased		(4	)		—		(24	)		—			—			(24	)
Stock-based compensation		—			—		2,454			—			—			2,454
Other comprehensive loss		—			—		—			(3,684	)		—			(3,684	)
Dividends		—			—		—			—			(4,842	)		(4,842	)
Net income		—			—		—			—			81,229			81,229

Balance—September 30, 2022		146,520		$	1,465	$	289,284		$	(5,209	)	$	46,849		$	332,389


	For the Three Months Ended September 30, 2021
	Common Stock					Additional Paid-In Capital			Accumulated Other Comprehensive Income			Accumulated Deficit			Total
	Shares Issued			Par Value		Additional Paid-In Capital			Accumulated Other Comprehensive Income			Accumulated Deficit			Total
Balance—July 1, 2021		145,114		$	1,451	$	285,002		$	1,155		$	(29,871	)	$	257,737
Restricted stock issued and vesting of restricted stock units, net		36			—		—			—			—			—
Stock-based compensation		—			—		2,397			—			—			2,397
Other comprehensive loss		—			—		—			(302	)		—			(302	)
Dividends		—			—		—			—			(4,797	)		(4,797	)
Net income		—			—		—			—			5,833			5,833

Balance—September 30, 2021		145,150		$	1,451	$	287,399		$	853		$	(28,835	)	$	260,868


	For the Nine Months Ended September 30, 2022
	Common Stock						Additional Paid-In Capital			Accumulated Other Comprehensive Income			(Accumulated Deficit)/Retained Earnings			Total
	Shares Issued			Par Value			Additional Paid-In Capital			Accumulated Other Comprehensive Income			(Accumulated Deficit)/Retained Earnings			Total
Balance—January 1, 2022		145,107		$	1,451		$	289,736		$	682		$	(22,445	)	$	269,424
Restricted stock issued and vesting of restricted stock units, net		2,006			20			(20	)		—			—			—
Shares repurchased		(593	)		(6	)		(3,412	)		—			—			(3,418	)
Stock-based compensation		—			—			7,822			—			—			7,822
Other comprehensive loss		—			—			—			(5,891	)		—			(5,891	)
Dividends		—			—			(4,842	)		—			(9,679	)		(14,521	)
Net income		—			—			—			—			78,973			78,973

Balance—September 30, 2022		146,520		$	1,465		$	289,284		$	(5,209	)	$	46,849		$	332,389


	For the Nine Months Ended September 30, 2021
	Common Stock						Additional Paid-In Capital			Accumulated Other Comprehensive Income			Accumulated Deficit			Total
	Shares Issued			Par Value			Additional Paid-In Capital			Accumulated Other 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 deferred taxes of $1,022, upon the implementation of Accounting Standards Update 2020-06 (Note 10)		—			—			(3,682	)		—			616			(3,066	)

Balance—January 1, 2021 (as adjusted)		148,716		$	1,487		$	313,393		$	1,102		$	(52,783	)	$	263,199
Restricted stock issued and vesting of restricted stock units, net		1,412			13			(13	)		—			—			—
Shares repurchased		(5,121	)		(51	)		(34,455	)		—			—			(34,506	)
Exercise of stock options, net		143			2			813			—			—			815
Stock-based compensation		—			—			7,661			—			—			7,661
Other comprehensive loss		—			—			—			(249	)		—			(249	)
Dividends		—			—			—			—			(14,662	)		(14,662	)
Net income		—			—			—			—			38,610			38,610

Balance—September 30, 2021		145,150		$	1,451		$	287,399		$	853		$	(28,835	)	$	260,868


Exhibit No.		Description

3.1		Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Registrant’s Registration Statement on Form 10 filed with the SEC on March 31, 2011)

3.2		Certificate of Amendment to the Amended and Restated Certificate of Incorporation (Declassification of Board of Directors) (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on July 20, 2022)

3.3		Certificate of Amendment to the Amended and Restated Certificate of Incorporation (Increase in Authorized Shares) (incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K filed with the SEC on July 20, 2022)

3.4		Certificate of Designations of Series A Non-Voting Convertible Preferred Stock of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on April 13, 2018)

3.5		Third Amended and Restated By-Laws (incorporated by reference to Exhibit 3.5 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 filed with the SEC on August 5, 2022)

4.1		Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form 10 filed with the SEC on March 31, 2011)

4.2		Amended and Restated Stockholders Agreement among the Registrant and certain investors dated December 21, 2006 (incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form 10 filed with the SEC on March 31, 2011)

4.3		Securities Purchase Agreement among the Registrant and certain investors dated December 21, 2006 (incorporated by reference to Exhibit 4.3 of the Registrant’s Registration Statement on Form 10 filed with the SEC on March 31, 2011)

4.4		Securities Purchase Agreement among the Registrant and certain investors dated October 15, 2009 (incorporated by reference to Exhibit 4.4 of the Registrant’s Registration Statement on Form 10 filed with the SEC on March 31, 2011)

4.5		Third Amended and Restated Registration Rights Agreement dated October 15, 2009 (incorporated by reference to Exhibit 4.5 of the Registrant’s Registration Statement on Form 10 filed with the SEC on March 31, 2011)

4.6		Investor Rights Agreement, dated April 11, 2018, between the Registrant and ETFS Capital (incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on April 13, 2018)

4.7		Indenture, dated as of June 16, 2020, by and between the Registrant and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on June 17, 2020)

4.8		Form of Global Note, representing the Registrant’s 4.25% Convertible Senior Notes due 2023 (included as Exhibit A to the Indenture filed as Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on June 17, 2020)

4.9		Indenture, dated as of June 14, 2021, by and between the Registrant and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on June 14, 2021)

4.10		Form of Global Note, representing the Registrant’s 3.25% Convertible Senior Notes due 2026 (incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K filed with the SEC on June 14, 2021)

4.11		WisdomTree Investments, Inc. 2022 Equity Plan (incorporated by reference to Exhibit 99.1 of the Registrant’s Registration Statement on Form S-8 filed with the SEC on July 25, 2022)


Exhibit No.					Description

10.1⁽¹⁾					Form of Restricted Stock Agreement for Non-Employee Directors

10.2⁽¹⁾					Form of Restricted Stock Unit Award Agreement (Deferred) for Non-Employee Directors

31.1⁽¹⁾					Rule 13a-14(a) / 15d-14(a) Certification

31.2⁽¹⁾					Rule 13a-14(a) / 15d-14(a) Certification

32⁽¹⁾					Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101⁽¹⁾					Financial Statements from the Quarterly Report on Form 10-Q of the Company for the three months ended September 30, 2022, formatted in XBRL: (i) Consolidated Balance Sheets at September 30, 2022 (Unaudited) and December 31, 2021; (ii) Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2022 and September 30, 2021 (Unaudited); (iii) Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2022 and September 30, 2021 (Unaudited) (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and September 30, 2021 (Unaudited); and (v) Notes to Consolidated Financial Statements, as blocks of text and in detail.

101.SCH⁽¹⁾					Inline XBRL Taxonomy Extension Schema Document

101.CAL⁽¹⁾					Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF⁽¹⁾					Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB⁽¹⁾					Inline XBRL Taxonomy Extension Labels Linkbase Document

101.PRE⁽¹⁾					Inline XBRL Taxonomy Extension Presentation Linkbase Document

104⁽¹⁾					Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*)


WISDOMTREE INVESTMENTS, INC.

By:		/s/ Jonathan Steinberg
		Jonathan Steinberg
		Chief Executive Officer (Principal Executive Officer)

WISDOMTREE INVESTMENTS, INC.

By:		/s/ Bryan Edmiston
		Bryan Edmiston
		Chief Financial Officer (Principal Financial Officer)