10-Q

Large accelerated filer

Accelerated filer

Non-accelerated
filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form

10-Q

(Mark One)

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

For the quarterly period ended March 31, 2023

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

For the transition period from

Commission File Number

001-10932

WisdomTree, Inc.

(Exact name of registrant as specified in its charter)


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

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

212-801-2080

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value Preferred Stock Purchase Rights	WT	The New York Stock Exchange The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company, or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule

12b-2

of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act). Yes ☐ No ☒

As of May 4, 2023, there

were 149,263,168 shares of the registrant’s Common Stock, $0.01 par value per share, outstanding.

WISDOMTREE, INC.

Form 10-Q

For the Quarterly Period Ended March 31, 2023

TABLE OF CONTENTS


PART I: FINANCIAL INFORMATION		4

ITEM 1.	FINANCIAL STATEMENTS	4

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	33

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	50

ITEM 4.	CONTROLS AND PROCEDURES	51

PART II: OTHER INFORMATION		51

ITEM 1.	LEGAL PROCEEDINGS	51

ITEM 1A.	RISK FACTORS	51

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	51

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	52

ITEM 4.	MINE SAFETY DISCLOSURES	52

ITEM 5.	OTHER INFORMATION	52

ITEM 6.	EXHIBITS	53

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

WisdomTree^®, WisdomTree Prime^™ and Modern Alpha^® are trademarks of WisdomTree, Inc. in the United States and in other countries. All other trademarks are the property of their respective owners.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form

10-Q,

or Report, 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, 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:

•

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;

•

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 related 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;

•

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

•

actions of activist stockholders.

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, Inc. and Subsidiaries

Consolidated Balance Sheets

(In Thousands, Except Per Share Amounts)


	March 31, 2023		December 31, 2022

	(unaudited)
Assets
Current assets:
Cash and cash equivalents (Note 3)	$	119,099	$	132,101
Financial instruments owned, at fair value (including $45,214 and $25,283 invested in WisdomTree products at March 31, 2023 and December 31, 2022, respectively) (Note 5)		130,180		126,239
Accounts receivable (including $32,446 and $24,139 due from related parties at March 31, 2023 and December 31, 2022, respectively)		35,496		30,549
Prepaid expenses		5,877		4,684
Income taxes receivable		1,799		—
Other current assets		291		390

Total current assets		292,742		293,963
Fixed assets, net		515		544
Indemnification receivable (Note 20)		—		1,353
Securities held-to-maturity		253		259
Deferred tax assets, net (Note 20)		5,871		10,536
Investments (Note 7)		26,902		35,721
Right of use assets—operating leases (Note 12)		1,153		1,449
Goodwill (Note 22)		85,856		85,856
Intangible assets, net (Note 22)		603,968		603,567
Other noncurrent assets		507		571

Total assets	$	1,017,767	$	1,033,819

Liabilities and stockholders’ equity
Liabilities
Current liabilities:
Convertible notes—current (Note 10)	$	59,884	$	59,197
Fund management and administration payable		27,830		36,521
Deferred consideration—gold payments (Note 9)		17,984		16,796
Compensation and benefits payable		9,341		24,121
Income taxes payable		—		1,599
Operating lease liabilities (Note 12)		1,041		1,125
Accounts payable and other liabilities		14,846		9,075

Total current liabilities		130,926		148,434
Convertible notes (Note 10)		273,767		262,019
Deferred consideration—gold payments (Note 9)		161,847		183,494
Operating lease liabilities (Note 12)		120		339
Other noncurrent liabilities (Note 20)		—		1,353

Total liabilities		566,660		595,639
Preferred stock—Series A Non-Voting Convertible, par value $0.01; 14.750 shares authorized, issued and outstanding; redemption value of $86,638 and $77,969 at March 31, 2023 and December 31, 2022, 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: 149,291 and 146,517 at March 31, 2023 and December 31, 2022, respectively		1,493		1,465
Additional paid-in capital		292,971		291,847
Accumulated other comprehensive loss		(954)		(1,420)
Retained earnings		25,028		13,719

Total stockholders’ equity		318,538		305,611

Total liabilities and stockholders’ equity	$	1,017,767	$	1,033,819

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

Table of Contents

WisdomTree, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(In Thousands)

(Unaudited)


	For the Three Months Ended March 31, 2023
	Common Stock						Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings/ (Accumulated Deficit)			Total
	Shares Issued			Par Value			Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings/ (Accumulated Deficit)			Total
Balance—January 1, 2023		146,517		$	1,465		$	291,847		$	(1,420	)	$	13,719		$	305,611
Restricted stock issued and vesting of restricted stock units, net		3,379			34			(34	)		—			—			—
Shares repurchased		(605	)		(6	)		(3,378	)		—			—			(3,384	)
Stock-based compensation		—			—			4,536			—			—			4,536
Other comprehensive income		—			—			—			466			—			466
Dividends		—			—			—			—			(4,924	)		(4,924	)
Net income		—			—			—			—			16,233			16,233

Balance—March 31, 2023		149,291		$	1,493		$	292,971		$	(954	)	$	25,028		$	318,538


	For the Three Months Ended March 31, 2022
	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, 2022		145,107		$	1,451		$	289,736		$	682		$	(22,445	)	$	269,424
Restricted stock issued and vesting of restricted stock units, net		2,042			21			(21	)		—			—			—
Shares repurchased		(589	)		(6	)		(3,388	)		—			—			(3,394	)
Stock-based compensation		—			—			2,936			—			—			2,936
Other comprehensive loss		—			—			—			(486	)		—			(486	)
Dividends		—			—			(4,842	)		—			—			(4,842	)
Net loss		—			—			—			—			(10,261	)		(10,261	)

Balance—March 31, 2022		146,560		$	1,466		$	284,421		$	196		$	(32,706	)	$	253,377

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

Table of Contents

WisdomTree, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)


	Three Months Ended March 31,
	2023			2022
Cash flows from operating activities:
Net income/(loss)	$	16,233		$	(10,261	)
Adjustments to reconcile net income/(loss) to net cash used in operating activities:
(Gain)/loss on revaluation of deferred consideration—gold payments		(20,592	)		17,018
Advisory and license fees paid in gold, other precious metals and cryptocurrency		(12,760	)		(16,052	)
Loss on extinguishment of convertible notes		9,721			—
Impairments		4,900			—
Deferred income taxes		4,783			5,273
Stock-based compensation		4,536			2,936
Contractual gold payments		4,486			4,450
Losses on investments		3,919			163
(Gains)/losses on financial instruments owned, at fair value		(1,954	)		5,142
Amortization of issuance costs—convertible notes		579			645
Amortization of right of use asset		319			89
Depreciation and amortization		109			47
Changes in operating assets and liabilities:
Accounts receivable		(4,791	)		(3,710	)
Prepaid expenses		(1,161	)		(2,264	)
Gold and other precious metals		8,332			11,959
Other assets		167			(52	)
Intangibles—software development		(452	)		—
Fund management and administration payable		3,638			3,199
Compensation and benefits payable		(27,271	)		(23,690	)
Income taxes payable		(3,418	)		(4,228	)
Operating lease liabilities		(326	)		(97	)
Accounts payable and other liabilities		5,606			6,741

Net cash used in operating activities		(5,397	)		(2,692	)

Cash flows from investing activities:
Purchase of financial instruments owned, at fair value		(20,278	)		(25,461	)
Purchase of investments		—			(6,863	)
Purchase of fixed assets		(26	)		(54	)
Proceeds from the sale of financial instruments owned, at fair value		18,290			13,639
Proceeds from held-to-maturity securities maturing or called prior to maturity		6			18

Net cash used in investing activities		(2,008	)		(18,721	)

Cash flows from financing activities:
Repurchase of convertible notes (See Note 10)		(124,317	)		—
Dividends paid		(4,821	)		(4,842	)
Shares repurchased		(3,384	)		(3,394	)
Convertible notes issuance costs		(3,548	)		—
Proceeds from the issuance of convertible notes (Note 10)		130,000			—

Net cash used in financing activities		(6,070	)		(8,236	)

Increase/(decrease) in cash flow due to changes in foreign exchange rate		473			(665	)

Net decrease in cash and cash equivalents		(13,002	)		(30,314	)
Cash and cash equivalents—beginning of year		132,101			140,709

Cash and cash equivalents—end of period	$	119,099		$	110,395

Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	1,422		$	2,123

Cash paid for interest	$	801		$	—

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

Table of Contents

WisdomTree, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(In Thousands, Except Share and Per Share Amounts)

1. Organization and Description of Business

WisdomTree, Inc., through its global subsidiaries (collectively, “WisdomTree” or the “Company”), is a global financial innovator, offering a well-diversified suite of exchange-traded products (“ETPs”), models and solutions. Building on its heritage of innovation, the Company is also developing next-generation digital products and structures, including digital or blockchain-enabled mutual funds (“Digital Funds”) and tokenized assets, as well as its blockchain-native digital wallet, WisdomTree Prime

™

. 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 (“WTICAV”) in respect of the WisdomTree UCITS ETFs issued by WTICAV. WTICAV 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. (“WT Digital Management”) is a New York based investment adviser registered with the SEC, providing investment advisory and other management services to the WisdomTree Digital Trust (“WTDT”) and WisdomTree Digital Funds. The WisdomTree Digital Funds are issued in the U.S. by WTDT. WTDT is a Delaware statutory trust registered with the SEC as an open-end management investment company. Each Digital Fund will use blockchain technology to maintain a secondary record of its shares on one or more blockchains (e.g., Stellar or Ethereum), but will not directly or indirectly invest in any assets that rely on blockchain technology, such as cryptocurrencies.

•

WisdomTree Digital Movement, Inc

. is a New York based company operating as a money services business registered with the Financial Crimes Enforcement Network (“FinCEN”) and seeking state money transmitter licenses to operate a platform for the purchase, sale and exchange of digital assets, while also providing digital wallet services through WisdomTree Prime

™

to facilitate such activity.

•

WisdomTree Securities, Inc

. is a New York based limited purpose broker-dealer (i.e., mutual fund retailer), facilitating transactions in WisdomTree Digital Funds.

Table of Contents

2. Significant Accounting Policies

Basis of Presentation

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

Consolidation

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

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

Segment and Geographic Information

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

Foreign Currency Translation

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

Use of Estimates

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

Revenue Recognition

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

Contractual Gold Payments

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

Marketing and Advertising

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

Depreciation and Amortization

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


Equipment			3 to 5 years
Internally-developed software			3 years

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

Table of Contents

Stock-Based Awards

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

Third-Party Distribution Fees

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

Cash and Cash Equivalents

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

Accounts Receivable

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

Impairment of Long-Lived Assets

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

Financial Instruments Owned and Financial Instruments Sold, but Not yet Purchased (at Fair Value)

Financial instruments owned and financial instruments sold, but not yet purchased are financial instruments classified as either trading or

available-for-sale

(“AFS”). These financial instruments are recorded on their trade date and are measured at fair value. All equity instruments that have readily determinable fair values are classified by the Company as trading. Debt instruments are classified based primarily on the Company’s intent to hold or sell the instrument. Changes in the fair value of debt instruments classified as trading and AFS are reported in other income/(expenses) and other comprehensive income, respectively, in the period the change occurs. Debt instruments 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 instrument is below its amortized cost basis. Credit-related impairments are recognized in earnings with a corresponding adjustment to the instrument’s amortized cost basis if the Company intends to sell the impaired AFS debt instrument or it is more likely than not the Company will be required to sell the instrument 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 instrument 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.

Table of Contents

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.

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 and are included in intangible assets, net in the Consolidated Balance Sheets. Such 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.

Table of Contents

Deferred Consideration—Gold Payments

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

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.

Table of Contents

3. Cash and Cash Equivalents

Of the total cash and cash equivalents of $119,099 and $132,101 at March 31, 2023 and December 31, 2022, $118,306 and $131,104, respectively, were held at two financial institutions. At March 31, 2023 and December 31, 2022, cash equivalents were approximately $336 and $930, respectively.

Certain of the Company’s subsidiaries are required to maintain a minimum level of regulatory capital, which was $28,726 and $25,988 at March 31, 2023 and December 31, 2022, respectively. These requirements are generally satisfied by cash on hand.

4. Fair Value Measurements

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

Fair Value Measurement

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


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

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

Level 3	–	Instruments whose significant drivers are unobservable.

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

The tables below summarize the categorization of the Company’s assets and liabilities measured at fair value. During the three months ended March 31, 2023 and 2022, there were no transfers between Levels 2 and 3.


	March 31, 2023
	Total		Level 1		Level 2		Level 3
Assets:
Recurring fair value measurements:
Cash equivalents	$	336	$	336	$	—	$	—
Financial instruments owned, at fair value
ETFs		33,728		33,728		—		—
U.S. treasuries		2,993		2,993		—		—
Pass-through GSEs		81,046		23,352		57,694		—
Other assets—seed capital (WisdomTree blockchain-enabled funds)
U.S. treasuries		4,901		4,901		—		—
Equities		4,937		4,937		—		—
Fixed income		1,915		—		1,915		—
Other		660		—		660		—
Investments in Convertible Notes
Securrency, Inc.—convertible note (Note 7)		10,051		—		—		10,051
Fnality International Limited—convertible note (Note 7)		7,451		—		—		7,451

Total	$	148,018	$	70,247	$	60,269	$	17,502

Table of Contents


	March 31, 2023
	Total		Level 1		Level 2		Level 3
Non-recurring fair value measurements:
Securrency, Inc.—Series A convertible preferred stock (1)	$	3,588	$	—	$	—	$	3,588

Liabilities:
Recurring fair value measurements:
Deferred consideration (Note 9)	$	179,831	$	—	$	—	$	179,831


	December 31, 2022
	Total		Level 1		Level 2		Level 3
Assets:
Recurring fair value measurements:
Cash equivalents	$	930	$	930	$	—	$	—
Financial instruments owned, at fair value
ETFs		23,772		23,772		—		—
U.S. treasuries		2,980		2,980		—		—
Pass-through GSEs		96,837		23,290		73,547		—
Corporate bonds		885		—		885		—
Other assets—seed capital (WisdomTree blockchain-enabled funds)		1,765		—		1,765		—
Investments in Convertible Notes
Securrency, Inc.—convertible note (Note 7)		14,500		—		—		14,500
Fnality International Limited—convertible note (Note 7)		6,921		—		—		6,921

Total	$	148,590	$	50,972	$	76,197	$	21,421

Non-recurring fair value measurements:
Other investments (2)	$	312	$	—	$	—	$	312

Liabilities:
Recurring fair value measurements:
Deferred consideration (Note 9)	$	200,290	$	—	$	—	$	200,290

(1)

Fair value determined on March 31, 2023.

(2)

Fair value determined on May 10, 2022.

Recurring Fair Value Measurements—Methodology

Cash Equivalents (Note 3)

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

Financial instruments owned (Note 5)

– Financial instruments owned are investments in ETFs, U.S. treasuries, pass-through GSEs, corporate bonds, equities, fixed income and other assets. ETFs, U.S. treasuries and equities 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, corporate bonds and fixed income 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.

Table of Contents

Fair Value Measurements classified as Level

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


	Three Months Ended, March 31,
	2023			2022
Investments in Convertible Notes (Note 7)
Beginning balance	$	21,421		$	—
Purchases		—			6,863
Net unrealized losses (1)		(3,919	)		(163	)

Ending balance	$	17,502		$	6,700

Deferred Consideration (Note 9)
Beginning balance	$	200,290		$	228,062
Net realized losses (2)		4,486			4,450
Net unrealized (gains)/losses (3)		(20,592	)		17,018
Settlements		(4,353	)		(4,353	)

Ending balance	$	179,831		$	245,177

(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/(loss) on revaluation of deferred consideration—gold payments in the Consolidated Statements of Operations.

5. Financial instruments owned

These instruments consist of the following:


	March 31, 2023		December 31, 2022
Financial instruments owned
Trading securities	$	117,767	$	124,474
Other assets—seed capital (WisdomTree blockchain-enabled funds)		12,413		1,765

	$	130,180	$	126,239

The Company recognized net trading gains/(losses) on financial instruments owned that were still held at the reporting dates of $4,722 and ($4,316) during the three months ended March 31, 2023 and 2022, 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:


	March 31, 2023		December 31, 2022
Debt instruments: Pass-through GSEs (amortized cost)	$	253	$	259

During the three months ended March 31, 2023 and 2022, the Company received proceeds of $6 and $18, respectively, from

held-to-maturity

securities maturing or being called prior to maturity.

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

held-to-maturity:


	March 31, 2023			December 31, 2022
Cost/amortized cost	$	253		$	259
Gross unrealized losses		(17	)		(20	)
Gross unrealized gains		—			—

Fair value	$	236		$	239

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.

Table of Contents

The following table sets forth the maturity profile of the securities

held-to-maturity;

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


	March 31, 2023		December 31, 2022
Due within one year	$	—	$	—
Due one year through five years		—		—
Due five years through ten years		26		27
Due over ten years		227		232

Total	$	253	$	259

7. Investments

The following table sets forth the Company’s investments:


	March 31, 2023				December 31, 2022
	Carrying Value		Cost		Carrying Value		Cost
Securrency, Inc.—Series A convertible preferred stock	$	3,588	$	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		10,051		15,000		14,500		15,000

Subtotal—Securrency, Inc.	$	19,139	$	28,612	$	28,488	$	28,612
Fnality International Limited—convertible note		7,451		6,863		6,921		6,863
Other investments		312		250		312		250

	$	26,902	$	35,725	$	35,721	$	35,725

Securrency, Inc. – Preferred Stock

The Company owns approximately 22% (or 17 % 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 (“Securrency Series A Shares”) in December

2019 and 2,004,665

shares of Series B convertible preferred stock (“Securrency Series B Shares”) in March 2021. The Securrency 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 Securrency Series B Shares except that they have limited voting rights) and senior to that of the holders of the Securrency Series A Shares, which are senior to the holders of common stock. Otherwise, the Securrency Series A Shares and Securrency 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 Securrency Series A Shares and Securrency Series B Shares (together with the Securrency 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

% of the

Securrency

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

of the Securrency 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 value and are not considered to be

in-substance

common stock. The investments are assessed for impairment and similar observable transactions on a quarterly basis. During the three months ending March, 31, 2023, the Company recognized an impairment of $4,900

on its Securrency Series A Shares to reduce the carrying value of its investment to fair value. Fair value was determined using the probability-weighted expected return method (“PWERM”), a valuation approach that estimates fair value assuming various outcomes.

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


	March 31, 2023
Conversion of Securrency Series A Shares upon a future equity financing		33.3%
Redemption of Securrency Series A Shares upon a corporate transaction		33.3%
Default		33.4%

There was no impairment recognized during the three months ended March 31, 2022 based upon a qualitative assessment.

Table of Contents

Securrency – Convertible Note

In April and November 2022, the Company participated in a convertible note financing, making an aggregate investment of $15,000 in convertible notes of Securrency. In consideration for its investment, the Company was issued a 7% Convertible Promissory Note maturing on
October 20, 2023.

The notes are convertible into either common stock or a 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 of Securrency. The notes will convert 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 notes are 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, in accordance with the terms of the notes, 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 notes are accounted for at fair value. Fair value is determined by the Company using PWERM. During the three months ended March 31, 2023, the Company recognized an unrealized loss of $4,449 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:


	March 31, 2023	December 31, 2022
Conversion of note upon a future equity financing	33.3%	60%
Redemption of note upon a corporate transaction	33.3%	25%
Default	33.4%	15%
Time to potential outcome (in years)	0.56	0.33

Fnality International Limited – Convertible Note

In February 2022, the Company participated in a convertible note financing, making an investment of £5,000 ($6,863) in convertible notes of 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 equity financing of Fnality. The note will convert 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 months ended March 31, 2023, the Company recognized a gain of $530 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:


	March 31, 2023	December 31, 2022
Conversion of note upon a future financing round	85%	85%
Redemption of note upon a change of control	10%	10%
Default	5%	5%
Time to potential outcome (in years)	0.08	0.25

Table of Contents

8. Fixed Assets, net

The following table summarizes fixed assets:


	March 31, 2023		December 31, 2022
Equipment	$	997	$	962
Less: accumulated depreciation		(482)		(418)

Total	$	515	$	544

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 per year 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 $179,831 and $200,290 at March 31, 2023 and December 31, 2022 using the following assumptions:


	March 31, 2023		December 31, 2022
Forward-looking gold price (low)—per ounce	$	1,999	$	1,858
Forward-looking gold price (high)—per ounce	$	3,567	$	3,126
Forward-looking gold price (weighted average)—per ounce	$	2,401	$	2,237
Discount rate		13.3%		11.0%
Perpetual growth rate		1.5%		1.3%

Fair value as of March 31, 2023 was determined using an equal weighting of a discounted cash flow approach and market approach. The forward-looking gold prices at March 31, 2023 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 at March 31, 2023 was determined based upon the increase in observable forward-looking gold prices through 2028. 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 $17,984 and $16,796 and long-term amounts payable were $161,847 and $183,494 at March 31, 2023 and December 31, 2022, respectively.

During the three months ended March 31, 2023 and 2022, the Company recognized the following in respect of deferred consideration:


	Three Months Ended March 31,
	2023		2022
Contractual Gold Payments	$	4,486	$	4,450
Contractual Gold Payments—gold ounces paid		2,375		2,375
Gain/(loss) on revaluation of deferred consideration—gold payments (1)	$	20,592	$	(17,018)

(1)

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

Table of Contents

10. Convertible Notes

On February 14, 2023, the Company issued and sold $130,000 in aggregate principal amount of 5.75% Convertible Senior Notes due 2028 (the “2023 Notes”) pursuant to an indenture dated February 14, 2023, between the Company and U.S. Bank Trust Company, National Association, as trustee (or its successor in interest, 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 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 the Trustee, in a private offering to qualified institutional buyers pursuant to 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”).

In connection with the issuance of the 2023 Notes, the Company repurchased $115,000 in aggregate principal amount of the 2020 Notes. As a result of this repurchase, the Company recognized a loss on extinguishment of approximately $9,721 during the three months ended March 31, 2023.

After the issuance of the 2023 Notes (and together with the remaining 2020 Notes and the 2021 Notes, the “Convertible Notes”), the Company had $340,000 in aggregate principal amount of Convertible Notes outstanding.

Key terms of the Convertible Notes are as follows:


	2023 Notes		2021 Notes		2020 Notes
Principal outstanding		$130.0		$150.0		$60.0
Maturity date (unless earlier converted, repurchased or redeemed)		August 15, 2028		June 15, 2026		June 15, 2023
Interest rate		5.75%		3.25%		4.25%
Conversion price		$9.54		$11.04		$5.92
Conversion rate		104.8658		90.5797		168.9189
Redemption price		$12.40		$14.35		$7.70

•

Interest rate:

Payable semiannually in arrears on February 15 and August 15 of each year for the 2023 Notes (beginning on August 15, 2023) and June 15 and December 15 of each year for the 2020 Notes and the 2021 Notes.

•

Conversion price:

Convertible at an initial conversion rate into shares of the Company’s common stock, per $1,000 principal amount of notes (equivalent to an initial conversion price set forth in the table above), subject to adjustment.

•

Conversion:

Holders may convert at their option at any time prior to the close of business on the business day immediately preceding May 15, 2028, March 15, 2026 and March 15, 2023 for the 2023 Notes, 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 for the respective Convertible Notes 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 May 15, 2028, March 15, 2026 and March 15, 2023 in respect of the 2023 Notes, 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 Convertible Notes, at its option, on or after August 20, 2025, June 20, 2023 and June 20, 2021 in respect of the 2023 Notes, 2021 Notes and 2020 Notes, respectively, and on or prior to the 55th 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 for the respective

Table of Contents

Convertible Notes 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 167.7853 shares, 144.9275 shares and 270.2702 shares of the Company’s common stock per $1,000 principal amount of the 2023 Notes, 2021 Notes and 2020 Notes, respectively (the equivalent of 59,767,426 shares of the Company’s common stock), subject to adjustment.

•

Seniority and Security:

The Convertible 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 11).

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.

The following table provides a summary of the carrying value of the Convertible Notes at March 31, 2023 and December 31, 2022:


	March 31, 2023								December 31, 2022
	2023 Notes		2021 Notes		2020 Notes		Total		2021 Notes		2020 Notes		Total
Principal amount	$	130,000	$	150,000	$	60,000	$	340,000	$	150,000	$	175,000	$	325,000
Plus: Premium		—		—		250		250		—		250		250

Gross proceeds		130,000		150,000		60,250		340,250		150,000		175,250		325,250
Less: Unamortized issuance costs		(3,465)		(2,768)		(366)		(6,599)		(2,981)		(1,053)		(4,034)

Carrying amount		126,535	$	147,232	$	59,884	$	333,651	$	147,019	$	174,197	$	321,216

Effective interest rate (1)		6.25%		3.83%		5.18%		5.00%		3.83%		5.26%		4.60%

(1)

Includes amortization of the issuance costs and premium.

Interest expense on the Convertible Notes during the three months ended March 31, 2023 and 2022 was $4,002 and $3,732, respectively. Interest payable of $3,243 and $621 at March 31, 2023 and December 31, 2022, respectively, is included in accounts payable and other liabilities on the Consolidated Balance Sheets.

The fair value of the Convertible Notes (classified as Level 2 in the fair value hierarchy) was $331,766 and $320,513 at March 31, 2023 and December 31, 2022, respectively. The

if-converted

value of the Convertible Notes did not exceed the principal amount at March 31, 2023 and December 31, 2022.

11. Series A Preferred Stock

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

Non-Voting

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

as-converted

basis. The Series A Preferred Stock has no voting rights, is not transferable and has the same priority with regard to dividends, distributions and payments as the common stock.

As described in the Series A 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 Series A Preferred Stock, 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.

Table of Contents

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

Non-Voting

Convertible Preferred Stock (the “Series A Preferred Stock”), 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 Series A Preferred Stock balance:


	March 31, 2023			December 31, 2022
Issuance of Series A Preferred Stock	$	132,750		$	132,750
Less: Issuance costs		(181	)		(181	)

Series A Preferred Stock—carrying value	$	132,569		$	132,569

Cash dividends declared per share (quarterly)	$	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 Series A Preferred Stock specified to be converted during the period of time specified in the Series A 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 Series A Preferred Stock 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 Series A Preferred Stock as it would have received had each outstanding Series A Preferred Stock 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.


	Three Months Ended March 31,
	2023			2022
Operating Revenues:
Advisory fees	$	77,637		$	76,517
Other income		4,407			1,851

Total revenues		82,044			78,368

Operating Expenses:
Compensation and benefits		27,398			24,787
Fund management and administration		17,153			15,494
Marketing and advertising		4,007			4,023
Sales and business development		2,994			2,609
Contractual gold payments (Note 9)		4,486			4,450
Professional fees		3,715			4,459
Occupancy, communications and equipment		1,101			753
Depreciation and amortization		109			47
Third-party distribution fees		2,253			2,212
Other		2,257			1,845

Total operating expenses		65,473			60,679

Operating income		16,571			17,689
Other Income/(Expenses):
Interest expense		(4,002	)		(3,732	)
Gain/(loss) on revaluation of deferred consideration—gold payments (Note 9)		20,592			(17,018	)
Interest income		1,083			794
Impairments (Note 7)		(4,900	)		—
Loss on extinguishment of convertible notes (Note 10)		(9,721	)		—
Other losses, net		(2,007	)		(24,707	)

Income/(loss) before income taxes		17,616			(26,974	)
Income tax expense/(benefit)		1,383			(16,713	)

Net income/(loss)	$	16,233		$	(10,261	)

Earnings/(loss) per share—basic	$	0.10		$	(0.08	)

Earnings/(loss) per share—diluted	$	0.10		$	(0.08	)

Weighted-average common shares—basic		143,862			142,782

Weighted-average common shares—diluted		159,887			142,782

Cash dividends declared per common share	$	0.03		$	0.03


	Three Months Ended March 31,
	2023		2022
Net income/(loss)	$	16,233	$	(10,261)
Other comprehensive income/(loss)
Foreign currency translation adjustment, net of income taxes		466		(486)

Other comprehensive income/(loss)		466		(486)

Comprehensive income/(loss)	$	16,699	$	(10,747)